The dollar is watching as the inflation outlook remains high on investors’ radar

LONDON, Dec 12 (Reuters) – The dollar fell on Monday, but U.S. headline inflation rose more than expected last week, data showed. .

The US currency edged higher against commodity-linked currencies such as the Australian and New Zealand dollars, but briefly rose as much as 0.5% against the pound after data showed the UK economy had recovered in October from a public holiday for Queen Elizabeth’s funeral. But hinted at an even darker outlook.

Sterling was last down 0.1% at $1.225, a session low of $1.2207, and the euro was down 0.1% at 86.01 pence.

This week is a very macro-packed one with the four major central banks holding their final policy meetings of the year and US consumer inflation data instrumental in determining the outlook for US interest rates and US interest rates. dollar.

The US Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank will publish rate decisions.

“With any luck, by the end of the week, the markets may lower their expectations a bit about where Bank of England and ECB rates will peak and hope that the central bank is going to move to 5% – or north of that,” Berenberg economist Callum Pickering said.

“It’s really going to be an interesting development across all asset classes because so far, we’ve had a ‘follow the Fed’ rulebook and what are we seeing in currency markets, what are we seeing in equities? We’re hoping the central bank will continue, the ECB will stop early and the Bank of England will After a week we can stop hiking,” he said.

The euro pared overnight losses and rose 0.2% to $1.0549. The single European currency is up nearly 8% so far in the fourth quarter as investors cling to a trend of previously aggressive ECB rate hikes.

Those expectations have moderated somewhat and money markets are indicating the ECB will raise rates by only half a percentage point this week.

After a series of 75-basis-point hikes, the central bank is widely expected to deliver the same level of rate hikes, especially given the tightening labor market and a reasonably resilient economy.

Friday’s data showed U.S. producer prices rose 7.4% year-on-year in November, compared with forecasts for a 7.2% rise, reminding investors how sticky inflation is proving to be.

“There was some concern about how inflation would continue to be high and encourage the central bank to keep policy at a tighter level for longer than previously expected,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA). .

Consumer inflation data for November is due on Tuesday and is expected to show a 6.1% increase in core measures excluding food and energy prices, up from 6.3% in October.

“With the FOMC (consumer inflation data) so close, the potential to change the tone of the news, the report and the dot plots is clear, but a headline 50bps hike is highly unlikely,” said Deutsche Bank strategist Jim Reid. said.

The dollar rose 0.2% to 136.87 against the yen. The Australian dollar was last down 0.3% at $0.6778 and down 0.3% at $0.6397.

The offshore yuan was mostly at 6.9782 to the dollar, further pressured by concerns over a possible spike in COVID cases as China eases its strict COVID-19 restrictions.

Ray Wei’s statement; Editing by Lincoln Feist, Bradley Perrett and Christian Schmollinger

Our Standards: Thomson Reuters Trust Principles.

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