The dollar hits its highest level since April ahead of the inflation test
LONDON (Reuters) – The dollar headed towards this year’s high against the euro on Wednesday and hit a five-week high against the yen ahead of U.S. inflation data, with a significant number making potentially pressure on the Federal Reserve to withdraw political support.
The greenback appreciated last week’s impressive US employment data and remarks from Fed officials on cutting bond purchases and possibly rate hikes earlier. than policy makers elsewhere.
Six consecutive sessions of gains against the euro sent the common currency to its lowest since late March on Tuesday. It hit 1.1706 in the first trades in Europe, with the year’s low of $ 1.1704 now within reach. The dollar index, at 93.155, is close to its 2021 high of 93.439.
U.S. inflation data due at 12:30 p.m. GMT could determine whether it tests those peaks, with a warm reading likely to fuel rate hike expectations and provide support, while a surprise to the downside could train them.
Valentin Marinov, head of G10 FX research at Credit Agricole, said the dollar has several advantages right now.
“The stronger than expected non-farm wage report on Friday boosted the dollar across the board as it apparently helped the Fed move closer to cutting QE (quantitative easing) and normalizing policy,” did he declare.
In addition, the US Senate has passed President Biden’s infrastructure package and thus boosted market expectations for increased US Treasury bill issuance at a time when the Fed is expected to announce its intention to cut back on purchases. US Treasury Bills. “
The resulting increase in Treasury yields boosted the attractiveness of dollar rates while further fueling concerns about the unwarranted tightening of global financial conditions that have tarnished the currency’s safe haven appeal, said Marinov.
The yen, which has fallen for five consecutive sessions against the dollar, fell 0.1% to 110.75 per dollar, its lowest since early July. The dollar also hit a two-week high against the British pound at $ 1.3816 and held at a one-month high at 0.9234 Swiss francs.
“A stronger-than-expected impression may add modestly to the dollar and (Treasury yields),” analysts at Maybank in Singapore said in a note.
“If the CPI impression unexpectedly surprises on the downside, then the decline in the dollar and the Treasury yield may be asymmetrically more important than the upside risks.”
Economists polled by Reuters expect the pace of inflation to slow slightly in July, with consumer prices rising 0.5% for the month from 0.9% a month earlier and the annual rate at 5.3%.
Two Federal Reserve officials said on Monday that inflation was already at a level that could satisfy a stage of a test for the onset of interest rate hikes – although a third, Charles Evans, did. be opposed Tuesday.
At the same time, investor sentiment is weakening in Europe, with a survey showing a third consecutive month of deterioration in Germany, as increasing global COVID-19 cases keep markets on the lookout.
“Investors should consider the possibility of information about the Fed’s cut at a time when COVID is still very apparent in various parts of the world,” said Jane Foley, analyst at Rabobank.
“The consequence of this is likely to be a stronger dollar,” she added, especially if the euro breaks its 2021 low.
South Korea reported a record number of COVID-19 cases on Wednesday, while outbreaks in China, Southeast Asia and Australia are steadily increasing. Hospitals in Texas and Florida are filling up with patients.
The Chinese yuan hit a two-week low in offshore trading, before stabilizing on land, while the South Korean won also hit a two-week low. [CNY/][.KS].
The Australian dollar was last bought at $ 0.7325, while the New Zealand dollar was at $ 0.6994. [AUD/]
A speech at 4:00 p.m. GMT by Kansas City Federal Reserve Bank President Esther George will also be closely watched.
Reporting by Ritvik Carvalho; additional reporting by Tom Westbrook in Singapore; Editing by Kirsten Donovan