NEW YORK: The US dollar edged higher on Friday, extending its gains from the previous session when hot US consumer prices data reinforced expectations that the Federal Reserve may have to keep interest rates higher for longer to tame inflation.
The consumer price index (CPI) rose 0.4% in September, keeping the annual rate at 3.7%, the same as in August, while economists polled by Reuters had forecast it would gain 0.3% on the month and 3.6% year-on-year.
Data on Wednesday had shown US producer prices increased more than expected in September amid higher costs for energy products and food. “Traders didn’t really believe in the hot PPI for September until CPI yesterday reinforced it,” Helen Given, FX Trader at Monex USA, said. “I see yesterday’s big USD move as a correction to the under-reaction to PPI Wednesday,” Given said.
The dollar index, which measures the US currency against six of its major peers, ticked up 0.08% to 106.6. The index, which jumped 0.8% on Thursday, its biggest one-day rise since March 15, is on pace to finish the week up 0.4%.
“A high close on the week suggests the USD may push on a bit more to retest – at least – its recent peaks,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note. Commentary from Fed speakers is likely to keep the dollar supported.
“A few Fed speakers scattered throughout the day will likely help USD - the ‘higher for longer’ rallying cry seems to be the party line,” Monex’s Given said. Federal Reserve Bank of Philadelphia President Patrick Harker said Friday he believes the central bank is likely done with rate hikes amid an ongoing waning in price pressures, while flagging the uncertainty of how long rates will need to remain elevated.
Data on Friday showed US import prices rose by less than expected in September as a strong dollar depressed prices of non-energy products, which over time will help to lower domestic inflation.
Thursday’s boost to the greenback saw the yen head back toward the sensitive 150 level it briefly touched last week before strengthening sharply, which led some to believe authorities were intervening in the currency market.
The Japanese yen was last up 0.09% at 149.57 per dollar, with traders on guard for any signs of weakness. “The risk of intervention is clearly high and that is constraining dollar-yen which would otherwise be higher,” said Adam Cole, chief currency strategist at RBC.
Sweden’s crown edged up against both the dollar and euro after consumer price data came in higher-than-forecast, adding to risks that the Riksbank could raise rates further.
“These data reinforce the case for one more rate hike – especially as activity data such as the monthly GDP indicator have also held up relatively well in the past couple of months,” Capital Economics chief Europe economist Andrew Kenningham said.
Investors also digested producer and consumer prices data out of China on Friday that showed deflationary pressures were slightly stronger than expected.
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