NEW YORK (Reuters) - The dollar fell against a basket of currencies on Friday, after data showed U.S. consumer prices rose less than expected in July, pointing to benign inflation that could make the Federal Reserve cautious about raising interest rates again this year.
The U.S. consumer price index edged up 0.1 percent last month after being unchanged in June. Economists polled by Reuters had expected the CPI to rise 0.2 percent in July.
"Taken in combination with yesterday's weaker-than-forecast producer price report, it is clear there is no need for imminent policy tightening," Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto, said in a note.
The dollar index, which tracks the greenback against six major currencies, was down 0.37 percent at 93.052, after earlier falling to a one-week low of 92.934.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year," said Sireen Harajli, foreign exchange strategist at Mizuho in New York.
"We are still not there yet, but we might be getting there pretty quickly if the data do not pick up," she said in a telephone interview.
The dollar fell to a 16-week low against the Japanese yen, but pared some losses after Russian Foreign Minster Sergei Lavrov said there was a Russian-Chinese plan to defuse tensions between the United States and North Korea.
"The last thing the markets want here is the tension between (the) U.S. and North Korea. It's a situation with no good resolution even though most people are sceptical that Russia and China have a plan to defuse the situation," Stan Shipley, a strategist at Evercore ISI in New York, said in a telephone interview.
The dollar was 0.11 percent lower against the Swiss franc.
The Swiss franc and the yen are often sought in times of geopolitical tension. Both have logged big gains against the dollar this week amid escalating tensions between North Korea and the United States.
The euro was up 0.45 percent at $1.1823 after Morgan Stanley raised its forecasts for the currency, predicting it would hit $1.25 early next year.
The British pound, which touched a three-week low against the greenback earlier in the session, recovered ground to trade 0.32 percent higher. Investors remain wary about the outlook for the British economy after a mixed bag of data this week.
The weaker greenback bolstered the Canadian dollar, helping it pull back from a four-week low.
Reporting by Saqib Iqbal Ahmed; additional reporting by Richard Leong; Editing by Jonathan Oatis