Dollar holds firm as US inflation data in focus

13 Sep, 2022

SINGAPORE: The dollar nursed losses on Tuesday ahead of US inflation data that could show some signs of softening, while the euro found its footing above parity on hawkish comments from policymakers that rates would need to increase further.

The dollar index stood firm at 108.2, after falling 0.7% overnight, the largest daily decline since August.

The euro rose 0.08% to $1.0130, after hitting a nearly one-month high of $1.0198 in the previous session and gaining 0.76% overnight.

Sterling edged up 0.07% to $1.1691, after rising 0.86% overnight, the largest daily increase in a month.

The yen likewise eked out gains and last traded 0.2% higher at 142.53 per dollar, helped slightly by talk of intervention from Japanese officials.

Dollar falls ahead of US inflation data; euro jumps

US inflation figures are due at 1230 GMT and the consensus is for the core inflation rate last month to have risen 0.3% month-on-month, the same as in July.

Recent dollar gains have slowed on market expectations that peaking inflation will mean less aggressive interest rate hikes from the Federal Reserve.

As it is, the New York Fed’s monthly consumer expectations survey showed on Monday that US consumers’ inflation expectations slid further in August on declining gasoline prices.

“The outcome of the CPI is going to be really important for the Fed … it would probably take an acceleration, a strong outcome in the CPI, to see them hike by 75 basis points,” said Kristina Clifton, a senior economist and senior currency strategist at Commonwealth Bank of Australia.

“If we get a reading sort of broadly in line with what the consensus is expecting, we would say they would go for a 50 basis point increase.”

However, Fed funds futures still imply an 89% chance of a 75 bp increase at next week’s Federal Open Market Committee meeting. The euro has enjoyed a respite above parity due to hawkish noises from the European Central Bank.

Last week, five sources close to the matter said Europe’s benchmark rate could rise to 2% or beyond. Officials on Monday also reiterated their view that rates would need to keep rising, and it would depend on forthcoming data.

The Ifo institute, in a U-turn from its forecast three months prior, said on Monday that Germany’s economy will contract next year because of rising energy costs.

“We definitely see downside to the euro rather than upside … we’re expecting the euro to pull back down below parity and stay there for quite a while, particularly while all those issues around energy supplies are still at play,” said Clifton.

Meanwhile, the Australian and New Zealand dollars reversed their gains in the Asian trading session after a broad pick-up in risk sentiment lifted the antipodean currencies 0.6% overnight.

The Aussie eased 0.27% to $0.6870, while the kiwi fell 0.15% to $0.6128.

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