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Dollar firms as traders brace for U.S. inflation gauge

Berita 24 English -  The dollar gained support on Thursday on emerging views that the Federal Reserve is gradually but steadily edging close...

Berita 24 English - 
The dollar gained support on Thursday on emerging views that the Federal Reserve is gradually but steadily edging closer to a discussion about tightening monetary policy and traders awaited critical US inflation data this week.
In a heavily short dollar market, the mere suggestion of tapering is enough to halt further selling, and the dollar maintained late Wednesday gains against the euro and yen early in Thursday's Asia session.

The euro was trading at $1.2185, while the yen fell to a one-week low of 109.20 yen to the dollar. Additionally, sterling fell to a week low of $1.4150.

Dollar strength also stung the kiwi, which bought $0.7275 after the Reserve Bank of New Zealand hinted at a 2022 rate hike. The Australian dollar fell to $0.7732 per dollar.

Fed officials downplayed immediate inflation concerns this week, prompting a knee-jerk policy response. However, they - particularly influential vice chair Richard Clarida - have shifted their tone slightly by acknowledging that the time for discussing policy changes may be approaching.

"That is probably the reason for the current USD strength," Commonwealth Bank of Australia currency strategist Kim Mundy said by phone from Sydney.

"The PCE deflator will be even more closely watched," she added, referring to the Federal Reserve's preferred inflation gauge, the personal consumption expenditures index.

"The fact that we anticipate a fairly significant increase in headline inflation may simply reinforce market expectations that the Fed is on track to begin tapering later this year."

Overnight, US yields increased, with the benchmark 10-year Treasury note rising 1.7 basis points to 1.5808 per cent. [North America/] The US dollar index followed suit, rising 0.4 per cent on Wednesday and remaining unchanged at 90.076 on Thursday.

Economists anticipate a 2.9 per cent year-on-year increase in core PCE prices in April, up from a 1.8 per cent year-on-year increase in March. The data is released every Friday.


The latest bout of inflation anxiety began in mid-May when data showed that the April CPI in the United States was running at a 4.2 per cent annual rate - boosted by the low base created by the pandemic year, but still well above forecasts of 3.6 per cent.

It has given dollar bears pause for thought, halting the dollar index's downtrend and confining the majors to ranges as the world awaits additional data to determine whether the lift is temporary.

According to RBC Capital markets, the yen, which is sensitive to changes in US interest rates and began the year falling as yields soared, spent May in its tightest range since December 2019 and, except for that month, in 45 years.

The kiwi's most recent sign of life, and flight, was a 0.8 per cent gain on Wednesday following the central bank's reintroduction of its rates outlook, which projected rates rising from 0.25 per cent currently to 0.49 per cent in September 2022 and to 1.78 per cent in June 2024.

This briefly elevated the kiwi above 73 cents and elevated it to the fourth-best performing G10 currency this year, gaining 1.3 per cent on the dollar year to date.

The Canadian dollar is the best performer, up 5% on the back of rising oil prices and a similarly hawkish central bank. Sterling is up 3.2 per cent as Britain's vaccination drive rekindles the economy.

Norway's crown has also benefited from rising oil prices and a hawkish central bank, rising 2.4 per cent year to date.

At 1230 GMT, the United States will release its GDP and preliminary prices data, as well as initial jobless claims, which are expected to decline slightly. The Federal Reserve's preferred core inflation guide is scheduled to be released on Friday.

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