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Title: Dollar off lows as U.S. inflation test looms


Jan 12, 2022 06:42AM ET


By: AnalysisWatch


The dollar stabilised above nearly two-month lows against its major peers on Wednesday ahead of data expected to show a renewed rise in US inflation that could seal an interest rate hike soon.


Federal Reserve Chairman Jerome Powell gave no clear indication on Tuesday that the Fed was in a hurry to accelerate plans to tighten monetary policy, putting some pressure on the dollar, which had benefited in recent weeks from expectations of a US rate hike.


The currency began to move higher again as the US consumer price index for December, due at 13:30 GMT, loomed.


The dollar index last traded at 95.643, steady above the low of 95.533 reached during Asian trade and the lowest since November 18.


Headline The consumer price index in the US is forecast at 7% year-on-year, which would be the highest since 1982.


ING foreign exchange strategist Francesco Pesole said the immediate reaction from foreign exchange markets is likely to be limited as markets expect inflation to be above 7%.


At his reappointment hearing on Tuesday, Fed Chairman Powell said the US economy is ready for higher interest rates and asset stripping—also known as "quantitative tightening"—to fight inflation.


However, he said policymakers are still debating approaches to reducing the Fed's balance sheet and that it can sometimes take two, three, or four meetings before such decisions are made.


Money markets are currently pricing in about 85% of a March rate hike and a total of at least three quarter-point hikes by the end of the year.


April LaRusse, head of fixed income at Insight Investment, pointed out that recent comments from companies indicate that they should expect higher price pressures, such as from commodities and wages.

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