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Dollar edges lower as US inflation data looms

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Dollar edges lower as US inflation data looms
Reuters
Tom Westbrook and Alun John
December 11, 2023

By Tom Westbrook and Alun John

SINGAPORE/LONDON (Reuters) - The dollar ticked lower on Tuesday and the yen regained some ground it had lost in the past two sessions as traders turned their focus to U.S. inflation data later in the day and a slew of central bank meetings ahead.

The dollar was 0.68% lower at 145.18 yen. The pair has had a volatile few days, with the yen surging on remarks taken as hawkish from the Bank of Japan before falling back on a news report playing down the prospect of an imminent policy change.

"There is talk of a pivot by the Bank of Japan to higher rates and there is some speculation it could come as soon as next week," ANZ economist Tom Kenny said.

"A hike now seems premature with a backdrop of weak consumer spending," he said, though trends in inflation and wages suggest sustainable inflation and ANZ anticipates Japan starting its journey out of super-accommodative negative rates by April 2024.

The euro ticked up 0.3% to $1.0797, and sterling gained 0.1% to $1.2566. The dollar index which tracks the greenback against six peers was down 0.3% at 103.76.

Investors in sterling were digesting data that showed British wage growth slowed by the most in almost two years, though pay is probably still rising too fast for the Bank of England to relax its tough stance against cutting interest rates.

Higher iron ore prices and a rebound in Chinese property shares helped nudge the Australian and New Zealand dollars higher.

Forty years to the day after its float, the Aussie gained 0.32% to $0.6589. The currency started around $0.9000 and has averaged $0.7550 since 1983. It used to be used by global investors as a liquid proxy for commodities, and now for exposure to China, Australia's largest trading partner. [AUD/]

The New Zealand dollar rose 0.44% to $0.6146.

EYES ON CPI

U.S. inflation data, due at 1330 GMT, will frame Wednesday's Federal Reserve policy decision.

The dollar has been slipping since October's benign U.S. inflation report but found footing on upbeat jobs data published on Friday. The Fed is considered all but certain to hold rates at 5.25%-5.50% this week, putting the focus on policymakers' so-called dot plots on the rate outlook and Chair Jerome Powell's press conference.

Economists polled by Reuters expect headline inflation to have been flat for November, and core inflation to keep steady at an annual pace of 4% - well above the Fed's 2% target.

"It feels like a 'risk on' morning as everyone hopes for a soft CPI number to convince us that the hawkish comments from Fed policy makers are just hawkish comments," said Kit Juckes head of FX strategy at Societe Generale.

"Everyone is just waiting for the numbers."

Markets are pricing in substantial rate cuts from central banks next year, and see a roughly 50% chance the first Federal Reserve rate cut will come as soon as March, according to the CME's Fedwatch tool.

Officials at the Fed, the Bank of England and the European Central Bank at least publicly continue to about an extended rate plateau however.

Later in the week, the ECB, BoE, Norges Bank and the Swiss National Bank all meet, with Norway considered the only possible hiker. There is also a risk the SNB could dial back its support for the franc in FX markets.

The franc made an almost nine-year high on the euro last week and was trading steady on Tuesday at 0.9451 francs to the common currency.

(Reporting by Tom Westbrook in Singapore and Alun John in London; Editing by Sonali Paul, Kim Coghill and Alison Williams)

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