The dollar maintains its strength ahead of the CPI announcement; sterling weakens again By Investing.com
Investing.com – The U.S. dollar rose on Monday, holding on to elevated levels after stronger-than-expected U.S. payrolls data, while the pound continued to struggle for friends.
At 04:35 ET (09:35 GMT), the Dollar Index, which tracks the dollar against a basket of six other currencies, was trading 0.4% higher at 109,930, after hitting its strongest level since October 2022 on Friday.
Dollar firm ahead of CPI
The dollar got a boost after data on Friday showed that US growth unexpectedly accelerated in December as it fell to 4.1%, leaving traders to reduce bets on a Federal Reserve rate cut this year.
Markets are now pricing in just 27 basis points worth of Fed rate cuts this year, down from roughly 50 basis points at the start of the year.
“Friday’s strong U.S. jobs announcement enabled another rally for the dollar. It is hard to see a reversal of the dollar trend this week given the prospect of another strong set of US inflation data, which will increasingly raise questions about whether the Fed should cut rates at all this year,” ING analysts said, in a note .
The US inflation report for December was released on Wednesday, and any positive surprise could threaten to close the door on a full contraction.
Sterling remains weak
In Europe, it traded 0.7% lower at 1.2117, with the pound falling to a 14-month low, after falling 1.8% last week, amid growing uneasiness over Britain’s finances, leading increase in borrowing costs.
“Sterling continues to trade on a soft basis and its losses could extend this week,” ING added. “Wednesday will be the most important day for the pound as UK CPI data for December is released then. Sterling could be hit regardless of the number that comes out. Sticky inflation and what it means for the Bank of England cycle could create more problems for the UK gilt market.”
it fell 0.4% to 1.0195, falling to its weakest level since October 2022, with high expectations that it will cut interest rates by around 100 basis points in 2025, with most of the cuts coming in the first half of the year as it is predicted that inflation will move towards the bank’s target of 2% by mid-2025.
“With US rates rising and the dollar in very good shape (up 8% since the end of September) it would not be a surprise to hear several central bankers become a little less cautious to support their beleaguered currencies,” ING said. .
“However, in Hong Kong today, the European Central Bank’s chief economist, Philip Lane, preferred to say that without further rate cuts, the ECB’s inflation target would be at risk. Therefore, the ECB does not appear to be particularly concerned about EUR/USD’s soft levels as calls for parity grow louder.”
Yuan lacks support
In Asia, it fell 0.3% to 157.23, with volumes hit by a holiday in Japan and traders remaining uncertain about the meeting.
rose 0.3% to 7.3574, although data showed China rose more than expected in December, helped by outsized exports.
But the reading was largely linked to exporters loading their shipments before US President-elect Donald Trump imposed harsh trade tariffs on the country. Trump – who will take office on January 20 – has promised to impose tariffs on China from “day one” of his presidency.
