June 17 (Bloomberg) -- The dollar dropped to the lowest level versus the yen in two weeks and fell against the euro as slower inflation than forecast in May led traders to reduce bets the Federal Reserve will boost the target lending rate. The U.S. currency weakened after a Labor Department report showed consumer prices had the biggest 12-month drop since 1950. The pound fell against the euro and dollar as the Bank of England said now isn’t the time to ease off from purchasing assets to lower borrowing costs. “It’s too early to talk about rate hikes and inflation,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second-biggest foreign-exchange trader. “It’s highly unlikely the Fed will shift course and focus on inflation, and the broader theme in the dollar is still down.” The dollar dropped 0.7 percent to 95.76 yen at 9:12 a.m. in New York, from 96.38 yesterday. It touched 95.74, the lowest level since June 3. The U.S. currency weakened 0.3 percent to $1.3883 per euro from $1.3837. The euro depreciated 0.3 percent to 133.01 yen from 133.38. Traders bet there’s a 50 percent chance the Fed will boost rates by at least a quarter-percentage point at its December meeting, down from a likelihood of almost 64 percent a week ago, fed funds futures showed. Central bank officials are considering whether to use next week’s policy statement to suppress any speculation they’re prepared to raise interest rates as soon as this year. Consumer Prices Consumer prices increased 0.1 percent in May, after no change in the prior month, the Labor Department reported today. The median forecast of 75 economists surveyed by Bloomberg News was for a 0.3 percent increase. “Policy markers are likely to be getting concerned about the extent to which markets are now building in rate hike expectations,” analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, wrote in a note today. “We are once again switching back to our core long currency recommendations against the dollar.” A long position is a bet a currency will rise. The pound dropped the most in more than a week against the euro after minutes of the Bank of England’s June 4 meeting showed policy makers voted unanimously to continue their asset- purchasing program this month, saying it was too early to know if the measures are working. Claims for U.K. jobless benefits rose by 39,300 to 1.54 million, the Office for National Statistics said today. The benchmark FTSE 100 Index of equities slipped to the lowest level since May 5. Pound Versus Dollar The pound decreased 0.8 percent to $1.6274 and depreciated 1.1 percent to 85.26 pence per euro. The dollar and yen may rebound against higher-yielding currencies should the Standard & Poor’s 500 Index fall through its 200-day moving average, according to RBC Capital Markets. U.S. stock futures fell and European equity markets dropped for a fourth day. The S&P 500 fell 1.3 percent yesterday to 911.97, above its 200-day moving average of 907.91. A drop below this technical level by the equity benchmark “would unleash another round of selling pressure on high yielders,” with the dollar and the yen set to outperform, Sue Trinh, a senior currency strategist at RBC in Sydney, wrote today in a report. The dollar declined yesterday versus the euro as the BRIC nations, Brazil, Russia, India and China, urged in a joint statement released to reporters after meeting in Yekaterinburg, Russia, a “more diversified” global monetary system. The first BRIC summit was held after Brazil, China and Russia announced plans in recent weeks to shift some foreign reserves into International Monetary Fund bonds, causing the dollar and U.S. Treasuries to fall. The BRIC nations have combined reserves of $2.8 trillion and are among the biggest holders of U.S. government debt.

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