The US dollar dropped on Tuesday against its developed-market peers as expectations for a Federal Reserve rate rise this year receded.

The dollar index, which gauges the greenback against the currencies of six major US trading partners, skidded 0.9 per cent in mid-morning trading in London.

The Japanese yen was the biggest major currency to gain on the US dollar, advancing by 1.3 per cent, hitting its strongest level since early July.

The fall for the American currency comes amid rising speculation that even as the US labour market nears full employment, Fed policymakers would like to see higher levels of inflation before adding to the December 2015 rate rise.

“We think the Fed might be willing to let the economy run hot before raising rates,” Richard Turnill, BlackRock’s global chief investment strategist said.

Those expectations were bolstered by comments from John Williams, the head of the San Francisco Fed, who said late on Monday that central banks should consider higher inflation targets given sluggish global growth.

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