Dollar Holds Steady as US Consumer Inflation Boosts Rate Hike Expectations
Dollar Strengthens on Strong US Inflation and China’s Deflationary Pressures
The dollar remained firm on Friday following the release of better-than-expected U.S. consumer inflation data, which raised the likelihood of the Federal Reserve maintaining higher interest rates for an extended period. Meanwhile, investors analyzed China’s producer and consumer prices data, which revealed slightly stronger deflationary pressures than anticipated.
Rob Carnell, head of research at ING, noted that China’s weak growth story was weighing on the price numbers, potentially increasing pressure on the government to further support the economy. Bloomberg News reported earlier in the week that China is considering raising its budget deficit for 2023 to stimulate economic growth.
However, Carnell added that significant stimulus measures were not expected. China’s exports for September contracted by 6.2% YoY, while imports declined by the same rate, indicating stabilization in the world’s second-largest economy.
Steady Offshore Yuan and Strengthening Australian Dollar
The offshore yuan remained mostly flat against the greenback at $7.3081, while the Australian dollar, often considered a proxy for China’s growth, strengthened by 0.2% to $0.6327. The New Zealand dollar eased about 0.1% to $0.592.
US Consumer Inflation Driven by Rental Costs
U.S. consumer prices in September were pushed higher by a surge in rental costs, according to recent data. Although underlying inflation pressures showed a steady moderation, supporting expectations that the Fed would not raise interest rates next month, the data did increase the possibility of prolonged elevated rates.
David Doyle, Macquarie’s head of economics, stated that the CPI data revealed challenges in pushing inflation persistently back towards the 2% target.
Yen Slides as Dollar Gains Momentum
The U.S. dollar index, measuring the currency against six major peers, slightly ticked down to 106.42 in the Asian morning, remaining near Thursday’s high of 106.60. The yen weakened, approaching the 150-line briefly touched last week, and settled at 149.80 yen per dollar. Traders are vigilant for potential intervention by Japanese authorities to support their currency if it weakens further.
Euro Bounces Back, Sterling Trading Steadily
The euro rebounded over 0.1% to $1.05445 after experiencing a decline against the dollar overnight. Sterling was trading at $1.2205.
