- The year-over-year increase in US core CPI slowed
- Focus on numerous central bank meetings led by the Fed
- The Fed is widely expected to raise interest rates by 50 basis points
- Dollar Relinquishes Gain From 1st 3 Quarters In 2 Months Analyst
LONDON/NEW YORK, Dec. 12 (Reuters) – The dollar fell in lean trading Monday as investors priced in lower US consumer price inflation for November and a Federal Reserve is likely to slow the pace of its rate hikes at the end of its two-day policy meeting on Wednesday.
Consumer inflation data for November comes in on Tuesday and is expected to show a 6.1% increase in core value year-over-year, excluding food and energy prices, from 6.3% in October.
In late morning trading, the euro was up 0.1% against the dollar to $1.0546. The single European currency is up nearly 8% so far in the fourth quarter as investors had previously relied on the European Central Bank to maintain a course of aggressive rate hikes.
The dollar changed little 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 value of the dollar against six major currencies, fell 0.1% to 104.92.
“The weaker dollar indicates that the market is seeing lower inflation and hearing what (Fed Chairman Jerome) Powell is saying that the Fed is cutting back the pace of its rate hikes and the market is pricing all of 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 dropped to around 104.70, which is the 50% retracement from the year’s lows to the highs, 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 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, the Bank of England and the Swiss National Bank will all announce their interest rate decisions this week.
The Fed is widely expected to hike a rate of 50 basis points (bps) after a series of 75 basis point hikes, especially given the tightness of the US labor market and a fairly resilient economy.
“Given the very close proximity to the FOMC, (consumer inflation data) clearly has the opportunity to change the tone of the message, the statement and the dot plots, but it is highly unlikely to change the 50 basis point increase,” 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 from a bank holiday in October for Queen Elizabeth’s funeral, but still pointed to a gloomy outlook.
Sterling was last up 0.2% to $1.2283 after falling to a session low of $1.2207, and was little changed against the European single currency at 86.03 pence per euro.
The offshore Chinese yuan fell 0.1% against the US currency to 6.983 per dollar, further weighed down by concerns over a possible spike in COVID cases as China eases its strict COVID-19 restrictions.
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Bid prices in currency at 10:39 AM (1539 GMT)
Reporting by Amanda Cooper in London and Gertrude Chavez-Dreyfuss; Additional reporting by Rae Wee in Singapore; Adapted by Lincoln Feast, Bradley Perrett, Christian Schmollinger and Mark Heinrich
Our Standards: The Thomson Reuters Principles of Trust.