Dollar rises slightly as traders await US inflation report

US dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

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NEW YORK, Aug 9 (Reuters) – The safe-haven dollar edged higher on Tuesday, erasing earlier losses as risk appetite waned ahead of key inflation figures that could give clues to the aggressiveness of the Federal Reserve in its planned interest rate hike in September.

The dollar index, which measures the value of the currency against a basket of peers, was up 0.047% at 106.38 at 3:15 p.m. Eastern Time (1915 GMT).

The greenback had drifted lower in thin summer trading since the start of the session, but then reversed course as U.S. stock markets slid on earnings warnings, global inflation concerns and data showing that productivity of American workers fell sharply in the second quarter. Read more

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“There are a lot of global issues and we can’t ignore them and that’s putting strong downward pressure on global growth,” Juan Perez, trading director at Monex USA, said of the dollar’s appeal. as a safe haven.

Traders are primarily focused on Wednesday’s U.S. Consumer Price Index report, which is expected to show inflation, which has been high for decades, eased in July after back-to-back increases of 75 basis points a year earlier. the Fed in June and July.

But Friday’s data showed U.S. employers hired far more workers than expected last month, with wages still rising at a healthy pace, bolstering bets for another gigantic rate hike by the Fed at its 2019 meeting. September 20 and 21. Read more

Money market futures show traders are seeing about a two-thirds chance of a 75 basis point rise next month.

“We regularly get hotter than expected inflation reports and if it happens again, the market is not prepared for it,” said Edward Moya, senior market analyst at Oanda. “If that happens, we retest parity against the euro,” he said of the dollar’s strengthening potential.

The euro rose 0.2% to $1.0204, the pound fell 0.12% to $1.2065. Against the yen, the dollar fell 0.14 to 135.195 yen.

Economists polled by Reuters see headline year-on-year inflation (USCPNY=ECI) at 8.7% – relatively high, but lower than last month’s 9.1% figure. The Fed is targeting 2% inflation.

Heightened expectations for aggressive short-term bull runs pushed short-term Treasury yields even further above their long-term counterparts.

The spread between the yields of two- and 10-year Treasury bills, a reliable indicator of the recession, reached its highest level in two decades.

“The U.S. yield curve is inverted, suggesting a down-the-line recession. But stock markets seem to believe the Fed will soon halt and start cutting in 2023,” said Mizuho’s senior economist, ​Colin Asher.

“I think tomorrow’s CPI data will suggest the Fed isn’t going to stop, which to me suggests weaker stock markets ahead, which will limit any decline in the dollar over the next few months.”

The dollar’s safe-haven status, however, makes the greenback’s reaction a little harder to predict, especially as growth and geopolitical concerns swirl.

China has extended military drills near Taiwan, and the self-governing island’s foreign minister said China was using the drills launched to protest the visit of US House Speaker Nancy Pelosi. as an excuse to prepare for an invasion. Read more

Elsewhere, the Australian dollar, seen as a barometer of market risk, fell 0.41% to $0.6955 and the New Zealand dollar 0.14% to $0.62765.

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Reporting by John McCrank in New York; additional reporting by Dhara Ranasinghe in London; Editing by Susan Fenton and Alistair Bell

Our standards: The Thomson Reuters Trust Principles.

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