Investing.com – The U.S. dollar drifted lower in early European hours Thursday, continuing to fall after softer-than-expected U.S. inflation raised expectations of an early end to the Federal Reserve’s monetary tightening.

At 03:55 ET (07:55 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 100.125, after falling around 1.2% on Wednesday, its biggest fall since November, to its lowest level since April 2022.

Soft U.S. CPI release hits the dollar

The dollar has been weak for a few weeks, but had its worst session in five months on Wednesday after U.S. fell to 3% in June, a drop of a full percentage point from last month, and came in at 0.2% in June against market expectations for 0.3%.

This result raised expectations that the interest rate hike of 25 basis points priced into the meeting later this month will be the last, potentially allowing the U.S. economy to have a ‘soft landing’, boosting risk appetite to the detriment of the dollar.

The result of the inflation report “is consistent with our view that Fed tightening is in its final innings,” said analysts at Goldman Sachs, in a note.

Sterling climbs despite GDP contracting

rose 0.2% to 1.3013, trading near a new 15-month high even though data showed that the U.K. economy contracted in May, raising the possibility of a recession later in the year.

The country’s fell 0.1% in May from April, following growth of 0.2% in the previous month, better than the contraction of 0.3% expected.

Yet, despite these weak numbers, with U.K. running at the highest rate of any major economy, the is expected to continue its tightening cycle when it next meets.

ECB publishes June policy minutes

rose 0.2% to 1.1149, marking a fresh 15-month high, with confirmed at 4.5% in June on an annual basis, a drop from 5.1% the prior month.

The European Central Bank publishes the from its June policy-setting meeting later in the session, but its officials have been pretty clear that another rate rise is coming this month so the meeting’s account is unlikely to have much of an impact.

Elsewhere, fell 0.1% to 138.31, with the yen trading close to a two-month high against the dollar, the risk-sensitive rose 0.6% to 0.6830, while traded largely unchanged at 7.1659, with the yuan weighed by disappointing data.