The dollar weakened on Friday after US inflation data came in cooler than expected, raising expectations that inflation may have peaked and that the Federal Reserve will start scaling back its aggressive interest rate hikes.

Data released by the US Bureau of Labor Statistics showed that the consumer price index (CPI) rose 7.7% year-on-year in October, the smallest rise since January and below market forecasts of an 8% increase.

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The dollar plunged overnight after the report and recorded its worst day against the Japanese yen since 2016, having fallen 3.7%. It has since rebounded some of those losses and last rose 0.53% to 141.69 yen.

Sterling recorded its best daily gain since 2017, surging over 3% overnight, along with the Australian dollar, which rose nearly 3%, its largest since 2011.

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The US dollar index, which compares the greenback to six other currencies, including the yen, pound, and euro, tumbled over 2% overnight, the biggest fall in over a decade. It last stood at 108.06.

“The overnight moves in the dollar were pretty sharp. I think the results in the US CPI for October will support the case for a downshift in the FOMC rate hike in December,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.

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“The Japanese government officials will certainly be happy about the drop in dollar/yen overnight, it was mainly driven by the sharp drop in US Treasury yields,” he added.

US Treasury yields fell sharply overnight as investors revised down their expectations of where US rates could peak, with the benchmark 10-year Treasury yield slipping below 4% to its lowest in over a month.

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In early Asia trade, the dollar was fighting to recover some of its losses, with the last 0.31% down at $1.0179, after surging nearly 2% overnight. The New Zealand dollar edged 0.43% lower to $0.6001, following a 2.4% overnight gain.

The pound hold-on to most of its overnight gains and was last down 0.32% at $1.1673, while the Australian dollar slipped 0.42% to $0.65915.