From Rae Wee
SINGAPORE (Reuters) – The dollar’s strong rally accelerated on Wednesday as traders turned cautious ahead of a closely watched U.S. consumer inflation report due later in the day, making them hesitant to take new positions.
The dollar steadied at the start of the Asian session after falling overnight and pulling away from more than two-year highs reached against a basket of currencies earlier in the week.
Its decline was partly due to a weak reading of US producer prices, which pulled government bond yields from their highest levels. [US/]
Against the dollar, the euro was far from its lowest in more than two years and last bought $1.0301.
Sterling fell 0.09% to $1.2205, as it remains under pressure from rising borrowing costs at home and concerns about Britain’s fiscal health.
UK inflation data is also due later on Wednesday, which will be closely watched by investors as concerns about domestic price pressures and a weak economy put more pressure on Chancellor of the Exchequer Rachel Reeves.
In the United States, markets expect core consumer prices to rise 0.2% on a monthly basis for December, and any positive surprise could further limit the extent of Federal Reserve rate cuts this year.
Wednesday’s announcement follows last week’s rising jobs report, which underscored the strength of the U.S. economy and prompted traders to sharply reduce bets on further Fed easing.
Still, analysts say any resulting effect of the inflation report on currencies is likely to be short-lived, given that the market’s focus remains largely on US President-elect Donald Trump’s impending return to the White House and, in particular, his plans for tariffs.
“Markets are still awaiting the future administration’s policies and impact on prices,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:).
“While FOMC officials have been sounding more cautious about rate cuts lately, they’re actually not that worried about recent inflation readings. They’re actually more worried about the future outlook for inflation under a second Trump term.”
Ahead of Trump’s inauguration on January 20, investors have been highly sensitive to headlines about his policy plans, which analysts expect will fuel inflation in the world’s largest economy.
The threat of tariffs along with expectations of a smaller rate cut by the Fed in turn pushed up government bond yields and supported the dollar.
Against a basket of currencies, the greenback was last slightly higher at 109.23, but was some distance from Monday’s peak of 110.17, its strongest level since November 2022.
The yen was little changed at 157.98 against the dollar, after drawing some support from the prospect of a rate hike from the Bank of Japan next week.
On the other hand, the Australian dollar held on to some of its overnight gains to trade at $0.6186. The New Zealand dollar fell 0.05% to $0.5601.
