The US dollar index erased October’s strong trading gains and fell below its key 200-week moving average last week, as a less dovish than expected FOMC Meeting Minutes and worse than expected US inflation data pushed the greenback lower.

Inside the Fed Minutes, Federal Reserve officials reiterated that they saw the US economy expanding at a steady rate, and indicated that another US interest rate hike was almost certain later this year. However, the US dollar moved sharply lower, as Federal Open Market Committee members expressed ‘real concern’ about persistently below trend inflation in the US economy. With some Fed members noting further a rate increase ‘may not be warranted’ and also debated over whether low US wage growth and price pressures could turn into a more long-term problem.

The US dollar came under further pressure on Friday, as US CPI figures came in worse than expected, whilst US Retail Sales figures came in as expected, at 0.4%, which seemed to disappointed investors. In the 12 months through September, core CPI increased 1.7%, while the month-on-month-figures came in worse than expected, growing just 0.1%, which was softer than the expected 0.2% increase. The persistent modest readings in the core CPI are likely to further worry Federal Reserve officials who have been engaged in a vigorous debate on the path of US inflation. US policy makers preferred inflation measure, the personal consumption expenditures, price index excluding food and energy, has consistently undershot the US Central Bank’s 2% target for more than five years.

The market reaction last week saw the greenback move lower against all its major counterparts. Commodity related currencies advanced sharply, with the AUDUSD pair being the stand-out, moving towards $0.7900 after holding support above the $0.7700 handle.

The euro staged a relief rally last week against the US dollar also, as Catalan President Carles Puigdemont pulled Catalonia back from the brink of a full-blown unilateral declaration of independence, after requesting a last-minute series of negotiations to resolve the crisis with the Spanish government. The single currency looked past the long-term risks associated with a break-up between Catalonia and Madrid, and instead focused on the near-term reprieve. The EURUSD pair moved back towards the 1.1900 level, after previously trading as low as 1.1669 on 6 October.