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Dollar edges up against euro after U.S. inflation data

Published 12/08/2022, 08:54 PM
Updated 12/09/2022, 03:11 PM
© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By John McCrank and Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar edged higher against the euro on Friday after U.S. producer inflation data for November came in slightly hotter than expected, bolstering the case for continued interest rate hikes by the Federal Reserve even if at a slower pace.

U.S. producer prices (PPI) rose 0.3% last month, data showed, above the 0.2% forecast by economist polled by Reuters.

While the PPI report showed the underlying trend in inflation was moderating, it heightened concerns among market participants that next week's consumer price inflation report, which comes out just before the December Fed interest rate decision, could also surprise on the upside.

"It was a stronger read on prices... that will leave the market cautious on a similar outcome next week," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

The U.S. central bank is in the midst of the fastest interest rate-hiking cycle since the 1980s as it tries to counter decades-high inflation, but Chair Jerome Powell said last month it could scale back the pace of rate hikes as soon as December.

Against the dollar, the euro was 0.1% lower at $1.05465, though the common currency was still on track for a third straight week of gains.

Sterling rose to a four-day high up 0.3% to $1.2273, as the British government announced reforms designed to maintain London as one of the most competitive financial hubs in the world.

The European Central Bank and the Bank of England will also announce interest rate decisions next week and markets are betting that they, along with the Fed, will slow the pace of their rate hikes, with 0.5 percentage point increases across the board.

Volatility levels for major currencies have retreated towards their long-run average, currency analysts at MUFG said in a note, as markets start to price in the prospect of peak interest rates early next year.

"Part of the decline in volatility we would put down to market pricing indicating most central banks are approaching terminal rates, suggesting Q1 will be the quarter when most central banks will pause after roughly 12 months of tightening," the note said.

© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

Against the Japanese yen, the dollar was 0.2% lower at 136.46 yen.

In cryptocurrencies, bitcoin, which have come under intense selling following the high-profile collapse of crypto exchange FTX, was down 0.5% at $17,142, after hitting a four-day high of $17,353 earlier in the session.

Latest comments

Recession fear occurs more slip on the other currencies instead of USD. Cause US economy is recognized as the most safety economy compared to other countries.'  I think the world market is quite manipulated already. So the reporters even cannot figure out the outcome's reasons.
When the fear resides investors jump out of the USD which is what we are seeing now. China is about to reopen, Japan are considering a move away from ultra-easy monetary policy, UK and much of Europe through the worst of Covid and recessionary fears similar to US and finally the possibility of Russia and Ukraine settling for truce next year. The USD is historically very high and now letting off steam.
@JongUn. Hey, would you stop it with the missiles already?
Apparently, you don't know what the definition of recession is...
Let me guess, 2 quarters of shrinking GPD, followed by a quarter of 2.9% growth. Right?
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