U.S. Dollar Dips, but Remains Strong After CPI Release
U.S. Dollar Loses Ground in Early European Trade
The U.S. dollar experienced a slight decline in early European trade on Friday. However, it continued to hold its strength following the release of U.S. inflation data. This data raised the possibility of another interest rate hike by the Federal Reserve before the year ends.
The Dollar Index, which tracks the greenback against six other currencies, traded 0.1% lower at 106.222 at 03:10 ET (07:10 GMT). This was just below Thursday’s high of 106.60, which witnessed the largest one-day percentage jump since March.
U.S. CPI Data Supports December Fed Rate Hike
The U.S. consumer price index (CPI) grew at a faster-than-expected rate in September, according to recent data. This potentially complicates the Federal Reserve’s upcoming policy decisions aimed at controlling high inflation.
In September, the headline CPI rose by 3.7% on an annual basis, the same pace as in August. Additionally, it increased by a larger-than-anticipated 0.4% month-on-month. Economists had predicted readings of 3.6% and 0.3%, respectively.
This data has sparked expectations that the Federal Reserve may continue with its monetary tightening. Despite many officials pointing to the recent increase in Treasury yields as reducing the need for further tightening, the dollar remains strong. Currently, markets are pricing in a 40% probability of a rate hike in December, compared to the previous 28% chance before the report.
Euro Sees Minor Gains After French/Spanish CPI Data
The euro slightly rebounded, rising 0.1% to 1.0537, following a sharp drop in the previous session. The eurozone also released more inflation data, with French CPI climbing by 4.9% on a yearly basis in September, and Spanish CPI rising by 3.5%. Both figures remain above the European Central Bank’s medium-term target.
ECB policymaker Francois Villeroy de Galhau reiterated his stance that the central bank should maintain its current key interest rate, the highest in 25 years, until inflation returns to the 2% goal.
Chinese Trade Data Shows Signs of Stabilization
The Japanese yen rose 0.1% to 7.3078 after China’s trade figures for September revealed a 6.2% year-on-year shrinkage. Imports also declined by 6.2%, indicating that the world’s second-largest economy still faces challenges.
However, these figures show a slower contraction compared to the previous month, suggesting that the Chinese economy is stabilizing. Meanwhile, the British pound rose 0.2% to 1.2193, the Australian dollar increased by 0.1% to 0.6319, and the Canadian dollar fell 0.2% to 0.5916.
Overall, the U.S. dollar remains strong despite minor dips, driven by the prospects of a December rate hike fueled by the recent CPI data. The euro and Chinese trade figures also contributed to the market sentiment, indicating signs of stabilization in the global economy.
