Dollar firms outpace US inflation data as China cuts yuan’s wings


Souvenir banknotes of 100 US dollars and 50 US dollars.

Pavel Konchar | LightRocket | Getty Images

The dollar was solid on Friday, ahead of US inflation data, which could adjust interest rates, while the Chinese yuan experienced its sharpest drop in months after government pressure triggered a recession.

The euro, which is considered vulnerable to a US rate hike, especially if the European rate is lagging behind, fell 0.4% overnight and came under pressure in Asia to $ 1.1293.

The dollar index at 96.212 is drifting towards its seventh straight weekly gain ahead of data due out at 13:30 GMT. Prices are expected to rise 6.8% annually, and any unexpected upside potential is likely to be interpreted as an argument for a faster tightening of the Federal Reserve and an early hike in interest rates.

Consumer confidence data is also due to be released on Friday, and if it persists, it could portend even greater price pressures in the future.

“Inflation is accelerating,” said Tom Porcelli, chief economist at RBC Capital Markets in the US, who believes the annual rate will rise and continue to rise, approaching 7% at the start of the new year.

“As a result, we think the combination means a March rally is possible,” he said. “The market estimates the likelihood of this at about 40%, but now we think it is slightly higher. It’s probably closer to a coin toss now. ”

The Fed, the European Central Bank, the Bank of England and the Bank of Japan will also meet next week, and the combination of inflation data and the possibility of a central bank reaction have sparked a sharp increase in market volatility.

“From the way the dollar is trading … I would say traders are aiming for a higher CPI, which reinforces the view that the Fed will increase the pace of its QE program’s tightening,” said Chris Weston, chief research officer. at Pepperstone.

“While the form suggests we will win, we obviously cannot dismiss the bad numbers and of course the inline printing – I think if we get 6.4% or below then AUD / USD should take off.”

Hilly

The volatility has also been fueled by the ebb and flow of concern over the omicron option and China’s policies.

A modest rally in the safe-haven yen yesterday indicated persistent caution, although widespread easing of concerns in previous sessions saw the Aussie up more than 2% this week, within sight of its biggest weekly gain since August.

The yen was last stable at 113.44 per dollar, just above the 50-day moving average. The Australian dollar rebounded sharply from 70 cents to $ 0.7149.

At the same time, the yuan fell about half a percentage point in offshore trading on Thursday to 6.3800 a dollar after the People’s Bank of China (PBOC) raised foreign exchange reserve requirements for the second time since June.

Analysts believe this will stimulate the sale of the yuan and cool the gains that have propelled it more than 2% against the dollar since late July.

“It also sent a clear signal of the NBK’s discomfort with the rapid and ongoing appreciation of the currency,” Goldman Sachs analysts said in a note.

Elsewhere, the pound sterling came under pressure as Britain tightened restrictions to try to limit the spread of the omicron variant. He last bought $ 1.3222.

The New Zealand dollar has actually come under pressure from aggressive growth prospects, and traders expect this to slow down future gains. In Asia, it hovered at $ 0.6795.

Cryptocurrencies have also dealt a little with risk aversion, with bitcoin struggling to survive in excess of $ 50,000. Last time it cost $ 48,100.

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