WASHINGTON: The dollar slid on Tuesday after US inflation data showed consumer prices rose by 8.5% in March compared to a year ago, boosted by soaring gasoline, but tempered by less expensive used cars and trucks.

While the initial readout came in slightly hotter than analysts expected, with the US consumer price index (CPI) posting the biggest monthly rise in consumer prices in 40 years, the data showed some signs that inflation may have peaked. Core CPI fell short of estimates, landing at 6.5%.

“There’s lots of positives that are suggesting that some of these extreme price surges could start to be abating,” said Edward Moya, senior market analyst at OANDA.

That could suggest that the Federal Reserve may not need to be as aggressive in tightening monetary policy in the second half of this year, he said.

“While this doesn’t change anything that the Fed will do over the next couple of meetings, it does support the idea that maybe they won’t have to be as aggressive with tightening policy later on in the year, and that’s why we saw the dollar drop somewhat following the initial reaction,” said Moya.

The dollar index fell 0.146%, with the euro down 0.02% to $1.0881.

Benchmark 10-year US Treasury yields dropped slightly to 2.7099%, after reaching 2.793% on Monday, the highest since January 2019.

The euro also declined Tuesday as markets shifted their attention to a European Central Bank policy meeting due later this week, where money markets are pricing in about 70 basis points of interest rate tightening by December.

Any rebounds in the euro will likely be limited by the ongoing Russian war against Ukraine, said Moya. In addition to pushing up gasoline prices, the Russia-Ukraine war, now in its second month, has led to a global surge in food prices as Russia and Ukraine also are major exporters of commodities such as wheat and sunflower oil.

“There’s just this overall belief that until you have a resolution with the war in Ukraine, their economic outlook is really going to be a big question mark, and that’s not necessarily going to be good for flows for the euro,” he said.

While negative, the euro recovered some of its post-French election gains on Tuesday. It had rallied to $1.09550 on Monday following the news that President Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.