Dollar hovers near two-month peak as Fed easing bets ebb before inflation data

TOKYO: The US dollar traded near a two-month peak against major peers on Thursday as markets grew more confident about a patient approach from the Federal Reserve to further monetary easing, even as a key inflation report loomed later in the day.

The dollar index, which measures the currency against six key rivals, was steady after climbing to the highest since Aug. 16 overnight, as traders further pared bets for US interest rate cuts this year in the wake of last week’s unexpectedly strong payrolls data.

September’s consumer price index (CPI), due at 1230 GMT, is likely to show core inflation holding steady at a 3.2% year-on-year clip, according to economists polled by Reuters.

The euro languished near its lowest since Aug. 13, while against the yen, the dollar hovered close to its strongest level since Aug. 15.

The “US exceptionalism trade” has reignited on the back of the spate of strong jobs data recently, said Kyle Rodda, senior financial markets analyst at Capital.com, with minutes from the Fed’s latest meeting - released overnight - confirming the central bank’s focus on keeping the labour market healthy.

“The US dollar is regaining supremacy, mostly because of continued US economic outperformance”, Rodda said.

At the same time, “an upside surprise in US CPI could force the Fed to doubt its confidence about the path for inflation.”

San Francisco Fed President Mary Daly said late Wednesday that she was less concerned now about resurgent inflation than about hurting the labor market.

Traders lay 80% odds on the Fed cutting rates by a quarter point at its next policy decision on Nov. 7, versus 20% probability of no change, according to the CME Group’s FedWatch Tool.

A day earlier, the probability of a cut stood at 85%.

Dollar edges up to two-month highs

The dollar index was little changed at 102.86 as of 0024 GMT, sticking close to Wednesday’s high of 102.93. The greenback eased 0.18% to 149.035 yen, but was not far from the overnight peak of 146.365.

The euro was flat at $1.0939 following its dip to $1.0936 in the previous session.

Australia’s dollar (AUD=D3) slipped 0.07% to $0.6714, edging back towards its low of $0.6708 from Wednesday, the weakest level since Sept. 16, after a stimulus announcement by top trading partner China’s state planner fell flat.

China’s finance ministry is due to hold a news conference on fiscal policy on Saturday. New Zealand’s dollar added 0.07% to $0.6067, trying to put some distance from the low of $0.6053 from Wednesday, when the central bank cut rates by a half point and hinted at further easing ahead, triggering a sharp slide in the currency.