NEW YORK: The US dollar tumbled to a nearly 9-month low against the euro on Thursday after US inflation data indicated prices were on a sustained downward trend, lifting expectations that the Federal Reserve will be less aggressive going forward with rate hikes.

The data showed that prices unexpectedly fell for the first time in more than 2-1/2 years in December.

The consumer price index (CPI) dipped 0.1% last month, marking the first decline in the data since May 2020, when the economy was reeling from the first wave of COVID-19 infections.

Economists polled by Reuters had forecast no change in the CPI.

Price pressures are subsiding as the US central bank’s fastest monetary policy tightening cycle since the 1980s dampens demand, and bottlenecks in the supply chains ease.

“Three months of relatively lighter core inflation figures are starting to form a trend ... one that could spur the Fed to slow the pace of tightening further on February 1,” said Sal Guatieri, senior economist at BMO Capital Markets.

The dollar hit $1.0845 against the euro, its weakest versus the common currency since April 25 following the CPI report.

The euro continues to find support from hawkish messaging from European Central Bank officials, with four on Wednesday calling for additional rate increases.

“Our expectations are for another 125 basis points of rate hikes from the ECB and stay there until 2024,” ING’s Turner said.

“Our core views for Fed policy versus ECB policy would be for a stronger euro-dollar through the year.” The dollar was down 0.34% versus the euro at $1.0796 at 9:15 a.m. EST (1415 GMT) and 0.3% against the pound at $1.2187.

The US dollar index was last down 0.407% at 102.7, its lowest level since June 9.