Dollar gains as inflationary pressures persist; Eyes on c.bank meetings

SINGAPORE, Dec 12 (Reuters) – The dollar rose on Monday after data on Friday showed US producer prices rose more-than-expected last month, pointing to ongoing inflationary pressures and a possibility that the Federal Reserve will would keep interest rates high for longer.

The dollar rose 0.35% against the Japanese yen to 137.05. Against a basket of currencies, the US Dollar Index returned 0.12% to 105.18.

The euro was last down 0.2% at $1.0509.

Sterling fell 0.31% to $1.2229 in Asian trading on Monday, while the Aussie fell 0.34% to $0.6773.

The kiwi also slipped 0.34% to $0.6393.

The US final consumer price index rose 0.3% mom and 7.4% yoy in November, data released on Friday showed, a slight upside surprise from forecasts of a 0.2% rise and 7.2%, respectively.

“There was a bit of concern that inflation would remain high and encourage the Fed to keep policy at accommodative levels longer than expected,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia (CBA). .

Traders were also kept alert ahead of key risk events this week, including US inflation data and a number of key central bank meetings.

The Federal Reserve is once again in the spotlight and is widely expected to hike interest rates by 50 basis points, although focus will be on the central bank’s updated economic forecasts and Fed Chair Jerome Powell’s press conference.

“If he talks more about the risks to the economy…I think that’s probably going to be viewed as dovish by the markets, and of course markets love dovish comments and how the FOMC will pay more attention to the downside risks to the economy,” Kong said by CBA.

The Bank of England and the European Central Bank (ECB) are also due to meet this week and are also expected to hike rates by 50 basis points each.

“ECB officials have told us they are more concerned with underlying inflation, which remains elevated,” Kong said of the upcoming ECB meeting.

“If they’re up 50 basis points… they could follow in Lagarde’s post-meeting conference call with some pretty aggressive comments.”

US inflation numbers for November are due ahead of Tuesday’s FOMC meeting, with economists expecting annual core inflation to come in at 6.1%.

“Market reaction to US inflation surprises has been asymmetric so far in 2022, with surprises on the downside having a larger impact than surprises on the upside,” Barclays analysts said.

“Inflationary pressures will likely be the larger driver of the two, (given) the Fed’s leadership for smaller rate hikes,” they added, citing the impact on the US dollar. The offshore yuan eased slightly to 6.9798 per dollar, which was further pressured by worries about a possible surge in COVID cases as China eases its strict COVID-19 restrictions.

Reporting by Rae Wee; Edited by Lincoln Feast and Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

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