Dollar near one-month low to yen as inflation test looms

Written by on November 9, 2021

November 10, 2021

By Kevin Buckland

TOKYO (Reuters) – The dollar held a three-day loss against major peers and traded near a one-month low to the yen on Wednesday, with highly anticipated U.S. inflation data looming that could guide the timing of a Federal Reserve interest rate increase.

The dollar index, which measures the greenback against six rivals, was little changed at 93.997 after retreating gradually from a more than one-year peak at 94.634 reached Friday.

The currency was steady at 112.87 yen after dipping to 112.73 on Tuesday for the first time since Oct. 11.

The euro was also about flat at $1.15915, maintaining a three-day gain that has brought it close to the month’s high of $1.16165.

Economists polled by Reuters see October’s U.S. consumer price index accelerating to 0.4% from the previous month’s 0.2% rise, with the closely watched year-on-year core measure gaining 0.3 percentage point to 4.3%, well above the Fed’s average annual 2% inflation target.

“We’ll need to see a print of 0.8% month-on-month to see the dollar index break out of the top of the range of 94.50,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

Although the dollar has been trending lower against the yen, “if U.S. CPI comes in hot then this poses a risk to USDJPY shorts,” he wrote.

Global inflation readings are under close scrutiny for evidence of whether rising price pressures are accelerating or showing signs of waning.

China’s October factory gate prices rose at the fastest pace since 1995, beating forecasts and further squeezing profit margins for producers grappling with soaring coal prices and other commodity costs.

Data on Tuesday showed U.S. producer prices increased solidly in October, indicating that high inflation could persist amid tight supply chains related to the pandemic.

U.S. Treasury real yields fell sharply as traders hedging against the possibility of rising prices scooped up Treasury Inflation Protected Securities (TIPS).

Analysts said the growing demand signalled inflation concerns are taking hold among a broader swath of investors and the public.

Fed officials on Tuesday said it was not clear that high inflation will become more entrenched than expected.

San Francisco Fed President Mary Daly said it would be mid-2022 before there is more clarity on the employment and inflation outlook. Minneapolis Fed President Neel Kashkari said he believes the forces keeping people out of the labour market and pushing up prices will be temporary.

Meanwhile, U.S. President Joe Biden met with Fed Governor Lael Brainard as a potential next Fed Chair. She would be considered a dovish pick.

“Brainard’s possible nomination as Fed Chair chipping at the (dollar),” Westpac strategists wrote in a research note.

“Otherwise, the underlying picture remains USD supportive,” and dips in the dollar index to the mid-93 level are a buying opportunity, they said.

Sterling, hammered last week in the wake of the Bank of England’s surprise decision to keep rates on hold, has been stable this week and last bought $1.3548, up from Friday’s more than one-month low of $1.3425.

The risk-sensitive Aussie dollar slipped 0.18% to $0.73665, approaching the lowest since mid-October at $0.73595, reached at the end of last week.

Concerns of contagion in China’s ailing property sector have flared again, with Evergrande facing a deadline Wednesday to pay an offshore bond.

On Tuesday, Kaisa Group made a plea for help to pay loans, workers and suppliers, while the Fed sent its first direct warning about potential global damage.

In cryptocurrencies, bitcoin hovered below the all-time high of $68,564.40 marked on Tuesday, last changing hands just north of $67,000.

Ether traded at $4,735.37, also keeping close to Tuesday’s record peak at $4,842.65.

(Reporting by Kevin Buckland; Editing by Sam Holmes and Gerry Doyle)


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