Tradables CPI, which includes goods and services that compete with global rivals, fell 0.1 percent in the first quarter and slipped 0.4 percent on the year, keeping headline inflation near the bottom of the bank's 1 percent-to-3 percent range.
The US central bank kept its key interest rate unchanged as expected on Wednesday and at the same time signaled policymakers were not overly concerned by the recent uptick in inflation. It raised rates once in 2016, but lifted borrowing costs three times previous year amid a strengthening economy and labor market. But there is an even split.
Westpac, like the market, expects two more hikes this year. "I think (today's move) is only temporary".
U.S. 10-year yields were at 2.970 percent, down from 2.976 percent late on Tuesday.
In just two weeks the dollar has surged almost four percent against a basket of the most traded currencies, erasing all the losses it had suffered since the start of 2018 .DXY .
"Good news is now bad news", said Peter Kenny, senior market strategist at Global Markets Advisory Group in NY. "That's one reason why, despite very good earnings, you're not getting the market moving higher".More news: Key announcements from Facebook's F8 conference
We now look ahead to this morning's inflation data, one of the most significant economic data releases when it comes to European Central Bank policy making. The policy statement noted both overall and core inflation have moved close to 2 percent. In its March statement, the Fed indicated business investment had "moderated" from a strong fourth quarter. "That was the fear going in, and this is probably being interpreted as somewhat dovish", said Arone.
Despite signs that inflation is edging up, few analysts expect any aggressive pickup in rate hikes. The Fed is next expected to raise rates in June, and at that time it will release new forecasts for the economy and interest rates. The Fed's plan is to continue to withdraw stimulus in a gradual manner, as tax bill and Donald Trump's spending plan take over. It omitted earlier language that the economy has strengthened in recent months. "Now that's gone", said Schumacher.
The statement said the economy has been growing at a moderate rate.
A report released by payroll processor ADP on Wednesday showed private sector employment in the U.S. increased by slightly more than anticipated in the month of April.
"The Fed's gradual approach to interest rate increases was justified by inflation running below 2 percent, but with inflation now on the cusp of that threshold the Fed may become more proactive about raising rates in an effort to keep inflation contained", Bankrate.com Chief Financial Analyst Greg McBride said.
"It's a continuation of what they're doing - they're still hiking", said Win Thin, senior currency strategist at Brown Brothers Harriman.
The dollar index, which tracks the greenback against six major peers, was down 0.15 percent at 92.314 in late trading.