Dollar swings up, down to flat after hot U.S. CPI data

2/2 © Reuters. FILE PHOTO: A Euro banknote is seen placed on U.S. Dollar banknotes in this illustration taken, November 28, 2021. REUTERS/Dado Ruvic/Illustration 2/2

By Herbert Lash

NEW YORK (Reuters) - The dollar swung in choppy trade on Thursday after U.S. consumer prices rose higher than forecast in January, leading markets to boost expectations for the Federal Reserve to aggressively fight soaring inflation.

The consumer price index rose 0.6% from December, the Labor Department said, while in the 12 months through January, CPI jumped 7.5%, the biggest year-on-year gain since February 1982.

The data marked the fourth straight month of annual gains in excess of 6% and made St Louis Federal Reserve Bank President James Bullard, a voting member of the Fed's policy-setting committee, "dramatically" more hawkish, he said.

The dollar index, a gauge of the greenback's value against six major currencies, initially rose almost 0.5%. It then slumped 0.4% and ended almost flat. It was last up 0.08%.

Higher interest rates typically would lift the dollar, but the market is already sufficiently long dollars, said Bipan Rai, head of FX strategy at CIBC Capital Markets.

"Markets are keen to take profits on those existing long dollar positions," Rai said. "The market has the Fed priced fairly aggressively not just for this year but for next year as well."

Chances of a 50 basis point interest-rate hike rose to more than the likelihood of a 25 basis point increase as was expected before.

The market also considered how other central banks will fight inflation that's on the rise globally, driven especially by rising commodity prices.

"This broader, widespread pricing pressures is a global story," said Edward Moya, senior market analyst at OANDA. "We're starting to see a lot of these other advanced economies are now becoming more aggressive in tackling inflation."

Rates, especially at the short end, soared after the CPI data was released. The two-year U.S. Treasury yield, which typically moves in step with rate expectations, rose 26.1 basis points to 1.609%. The yield on 10-year Treasury notes topped 2% for the first time in 2-1/2 years.

The rates market was questioning the extent of inflation, said Nancy Davis, managing partner and chief investment officer at Quadratic Capital Management LLC.

"I don't think CPI is giving us the whole picture. Given the forward guidance from the Fed, the rates market is priced for disinflation."

Earlier in Europe, the Swedish central bank kept its monetary policy plans broadly unchanged and stressed its view that surging inflation is temporary.

The dovish stance by the Riksbank led the dollar to post its biggest gain among major currencies, leading the Swedish crown to fall 2.01% versus the greenback at 9.31 per dollar.

The euro rose 0.11% to $1.1434.

The Japanese yen weakened 0.43% at 115.99 per dollar to hit a five-week low. The Bank of Japan said it would intervene in markets by offering to buy an unlimited amount of 10-year Japanese government bonds at 0.25%.

In cryptocurrencies, Bitcoin last fell 1.11% to $43,985.20.

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Currency bid prices at 3:53PM (2053 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct Change High Bid Low Bid

Previous

Session

Dollar index 95.6370 95.5760 +0.08% -0.027% +96.0130 +95.1720

Euro/Dollar $1.1436 $1.1424 +0.12% +0.61% +$1.1495 +$1.1375

Dollar/Yen 115.9950 115.5500 +0.39% +0.76% +116.3300 +115.4800

Euro/Yen 132.66 131.99 +0.51% +1.80% +133.1500 +131.8700

Dollar/Swiss 0.9264 0.9241 +0.25% +1.56% +0.9296 +0.9228

Sterling/Dollar $1.3554 $1.3536 +0.13% +0.22% +$1.3643 +$1.3524

Dollar/Canadian 1.2719 1.2671 +0.39% +0.61% +1.2727 +1.2636

Aussie/Dollar $0.7163 $0.7181 -0.24% -1.45% +$0.7249 +$0.7148

Euro/Swiss 1.0595 1.0555 +0.38% +2.18% +1.0612 +1.0552

Euro/Sterling 0.8437 0.8441 -0.05% +0.42% +0.8447 +0.8411

NZ Dollar/Dollar $0.6671 $0.6682 -0.18% -2.55% +$0.6732 +$0.6654

Dollar/Norway 8.8070 8.8100 -0.09% -0.08% +8.8795 +8.7350

Euro/Norway 10.0741 10.0612 +0.13% +0.61% +10.1125 +10.0203

Dollar/Sweden 9.3055 9.1123 +2.19% +3.19% +9.3069 +9.0813

Euro/Sweden 10.6430 10.4145 +2.19% +3.99% +10.6475 +10.3786