Dollar falls to nearly 9-month low vs euro after US inflation data By Reuters


© Reuters. FILE PHOTO: A US hundred dollar bill and Japanese 10,000 yen notes are seen in this photo illustration in Tokyo, February 28, 2013. REUTERS/Shohei Miyano

By John McCrank

NEW YORK (Reuters) – The US dollar tumbled to a nearly 9-month low against the euro on Thursday after US inflation data indicated prices were on a sustained downward trend, raising expectations that the Federal Reserve will be less aggressive going forward with rate hikes .

The data showed that prices fell unexpectedly for the first time in more than 2-1/2 years in December.

The consumer price index (CPI) dipped 0.1% last month, marking the first decline in the data since May 2020, when the economy was reeling from the first wave of COVID-19 infections.

Economists polled by Reuters forecast had no change in the CPI.

Price pressures are subsiding as the US central bank’s fastest monetary policy tightening cycle since the 1980s dampens demand, and bottlenecks in the supply chains ease.

“Three months of relatively lighter core inflation figures are starting to form a trend … one that could spur the Fed to slow the pace of tightening further on February 1,” said Sal Guatieri, senior economist at BMO Capital Markets.

The dollar hit $1.0845 against the euro, its weakest versus the common currency since April 25 following the CPI report.

The euro continues to find support from hawkish messaging from European Central Bank officials, with four on Wednesday calling for additional rate increases.

“Our expectations are for another 125 based points of rate hikes from the ECB and stay there until 2024,” ING’s Turner said.

“Our core views for Fed policy versus ECB policy would be for a stronger euro-dollar through the year.”

The dollar was down 0.34% against the euro at $1.0796 at 9:15 am EST (1415 GMT) and 0.3% against the pound at $1.2187.

The was last down 0.407% at 102.7, its lowest level since June 9.

The greenback hit a 6-1/2 month low against the Japanese yen, which had been boosted by a Yomiuri report that the Bank of Japan (BOJ) will review the side effects of its monetary easing at next week’s policy meeting and may take additional steps to correct distortions in the yield curve.

The news follows the BOJ’s surprise tweak in December to its bond yield curve control, though the move has failed to address distortions caused in the bond market by the central bank’s massive bond buying.

“The overnight report emphasizes that next week’s Bank of Japan meeting is live for a potential policy change,” said Chris Turner, global head of markets at ING in London.

“You could start to see the normalization of monetary policy which would be a huge step for Japan (and) a very positive tailwind for the yen,” Turner added.

The dollar was last down 1.75% versus the yen at 130.2 yen per dollar.

The rose 0.59% to $0.6947, while it was up 0.18% at $0.6378.

Data released on Thursday showed Australia’s trade surplus unexpectedly widened in November and came in well above forecasts.

China’s was at its highest level in five months, at 6.747 per dollar, on optimism that China’s economy is on the road to recovery.

Meanwhile, bitcoin rose for the fifth consecutive day, hitting its highest in a month at $18,159.



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