U.S. dollar slips as markets expect lower inflation, slowing Fed hikes

- Advertisement -

  • U.S. November year-on-year core CPI increase seen moderating
  • Focus on slew of central bank meetings led by Fed
  • Fed widely expected to lift interest rates by 50 bps
  • Dollar gives up gains of 1st 3 quarters in 2 months -analyst

LONDON/NEW YORK, Dec 12 (Reuters) – The dollar fell on Monday in thin trading as investors priced in a lower U.S. consumer price inflation number for November and a Federal Reserve likely to slow the pace of its rate increases at the conclusion of its two-day policy meeting on Wednesday.

Consumer inflation data for November lands on Tuesday and is expected to show a 6.1% rise in the core reading on a year-on-year basis, which excludes food and energy prices, down from 6.3% in October.

In late morning trading, the euro rose 0.1% against the dollar to $1.0546 . The single European currency has gained almost 8% so far in the fourth quarter, as investors have previously banked on the European Central Bank sticking to a course of aggressive rate hikes.

The dollar was little changed against the Swiss franc at 0.9348 francs .

Against the yen, however, the dollar rose 0.5% to 137.24 .

The dollar index , which measures the greenback’s value against six major currencies, was down 0.1% at 104.92 .

“The weaker dollar is signalling that the market is seeing lower inflation and it is hearing what (Fed Chair Jerome) Powell is saying the Fed is cutting back on the pace of its rate increases and the market is pricing all that in,” said Joe Perry, senior market analyst at FOREX.com and City Index in New York.

He added that the dollar index peaked on Sept. 28 and has come off to around 104.70, which is the 50% retracement from the lows to the highs of the year, and is also the 200-day moving average.

“So it’s interesting that what took us the first three quarters to get to the high, we gave it up in two months,” Perry said.

This week is one of the most macro-packed so far this year, with four major central banks holding their final policy meetings of 2022.

The Federal Reserve, the European Central Bank, Bank of England and Swiss National Bank will all release rate decisions this week.

The Fed is widely expected to deliver a rate hike of 50 basis points (bps) after a series of 75-basis-point increases, especially given the tightness in the U.S. labor market and a reasonably resilient economy.

“Given the very close proximity to the FOMC, (consumer inflation data) clearly has the ability to change the tone of the message, the statement and the dot plots, but is highly unlikely to change the headline 50bps hike,” Jim Reid, head of thematic research at Deutsche Bank, wrote in a research note.

The dollar briefly rose as much as 0.5% against the pound after data showed the UK economy recovered in October from a public holiday for Queen Elizabeth’s funeral, but still pointed to a bleak outlook.

Sterling was last up 0.2% at $1.2283, having dipped to a session low of $1.2207, and was little changed against the single European currency at 86.03 pence per euro.

The offshore Chinese yuan slipped 0.1% against the U.S. currency to 6.983 per dollar, further pressured by worries over a potential spike in COVID cases as China eases its stringent COVID-19 restrictions.


Currency bid prices at 10:39AM (1539 GMT)

Reporting by Amanda Cooper in London and Gertrude Chavez-Dreyfuss; Additional reporting by Rae Wee in Singapore; Editing by Lincoln Feast, Bradley Perrett, Christian Schmollinger and Mark Heinrich

Our Standards: The Thomson Reuters Trust Principles.

Read More: U.S. dollar slips as markets expect lower inflation, slowing Fed hikes

- Advertisement -

Notify of
Inline Feedbacks
View all comments