Dollar Sellers Pause Ahead of US Inflation Data
Investors have halted selling dollars ahead of the US Consumer Price Index release, after a recent dip in oil prices and a rally in equities nudged the greenback lower. The Australian dollar climbed nearly 1% to $0.6921 and the New Zealand dollar rose to $0.5624 in early Asia trade, while the euro gained 0.7% to $1.1220, moving back into the middle of its month-long range.
The dollar index, which has risen this year on early expectations of US rate cuts, is now facing renewed pressure from higher energy prices linked to the US-Israeli conflict over Iran and from inflation concerns. A strong October jobs report that showed hiring more than twice the forecast has pushed market pricing to an 85% probability of a Federal Reserve rate hike next month.
Economists surveyed by Reuters expect headline US inflation for October to be 3.9% year-on-year, with core inflation at 2.8%. Any reading above these levels could revive expectations of further rate hikes and lift the dollar, according to analysts. Westpac strategist Imre Speizer noted that while a modest price increase may be possible in December, future meeting expectations could rise.
Macquarie strategists Thierry Wizman and Gareth Berry warned that political uncertainty, including a potential Democratic sweep of Congress, could lead to tighter regulation of AI stocks and slow US growth, potentially capping the dollar’s upside through 2027. Meanwhile, the British pound held steady at $1.3441 within a long-standing range after the Bank of England’s recent rate hike, and Japan’s yen hovered at 157.97 per dollar, supported by $97 billion in reserve sales aimed at defending the currency.
Overall, the market remains long on dollars, but the pause reflects a cautious stance as traders await the CPI numbers, which will likely shape expectations for US monetary policy through the end of the year.
Why it matters
The dollar’s movement influences borrowing costs, import prices and investment returns for businesses and consumers worldwide.
FAQ
What are the current levels of the Australian and New Zealand dollars against the US dollar?
The Australian dollar is at $0.6921 and the New Zealand dollar is at $0.5624.
What inflation rates are economists expecting for October in the United States?
Headline inflation is expected at 3.9% and core inflation at 2.8% year-on-year.
What is the market’s probability of a Fed rate hike next month?
Markets are pricing an 85% chance of a Federal Reserve rate increase next month.
How has Japan defended its yen recently?
Japan sold $97 billion in reserves through late July and August to support the yen.
Source: Economic Times Markets. See the original source for full details.
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