TOKYO: The dollar nursed losses on Thursday, after weak US inflation data left investors wondering if the Federal Reserve would be able to follow up its latest rate hike with another later this year.

Deepening political turmoil in Washington also weighed on the greenback and US Treasury yields, with the Washington Post reporting that US President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.

Also on Wednesday, a prominent Republican was among those shot by a gunman said to be angry with Trump.

The dollar index, which tracks the US currency against a basket of six rivals, was slightly lower on the day at 96.915 though above its overnight low of 96.323 plumbed after downbeat economic figures.

The Fed raised interest rates a quarter percentage point to a target range of 1.00 percent to 1.25 percent on Wednesday, as expected, and gave its first clear outline on its plan to reduce its $4.2-trillion bond portfolio.

But the moves were overshadowed by inflation and retail sales data earlier in the day that fell short of market expectations. The core rate of inflation increased at just 1.7 percent on year, the fourth straight monthly deceleration and the slowest overall pace in two years.

The Fed said a recent softening in inflation was seen as transitory, but the latest tepid price readings made investors question its view that the US economy is continuing to improve.

Against its Japanese counterpart, the dollar shrugged off earlier losses and was flat at 109.54 yen, above Wednesday’s eight-week low of 108.81 yen.

The euro was also unchanged at $1.1217, below a seven-month peak of $1.1296 scaled overnight.

US 10-year Treasury yields were last at 2.134 percent, below their US close of 2.138 percent. They fell as low as 2.103 percent following the downbeat data, their lowest since Nov. 10.

The Fed also mapped out a very gradual approach to shrink its $4.2-trillion holdings of Treasury- and mortgage-backed assets that would allow it to begin as early as September. The process could start “relatively soon,” Fed Chair Janet Yellen said.

“It remains to be seen if the Fed can really do both this year - raise rates again, and also begin reducing its balance sheet,” Imaizumi added.

A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalisation at its Sept. 19-20 policy meeting. The rest of them said it would make such a move at its Dec. 12-13 meeting.

They said they expected Fed policymakers to raise interest rates one more time by the end of 2017 and then three times in 2018.

The Australia dollar rose 0.2 percent to $0.7605, moving back toward its 2-1/2-month high of $0.7636 hit on Wednesday, after a better-than-forecast employment report.

But the New Zealand dollar skidded 0.8 percent to $0.7213, moving away from the previous session’s four-month high of $0.7319.

Data showed that New Zealand’s economy grew 0.5 percent in the three months to March, lower than the 0.7 percent growth forecast in a Reuters poll and well below the central bank’s forecast for 0.9 percent growth.—Reuters