Q3 Earnings Alert! Plan early for this week’s stock reports with all key data in 1 placeSee list

Dollar edges higher as traders await U.S. inflation report

Published 08/08/2022, 10:09 PM
Updated 08/09/2022, 03:55 PM
© Reuters. U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration
DX
-

By John McCrank

NEW YORK (Reuters) - The safe-haven dollar edged higher on Tuesday, erasing earlier losses as risk appetite dwindled ahead of key inflation figures that could offer clues on how aggressive the Federal Reserve will be in its expected interest rate hike in September.

The dollar index, which measures the currency's value 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 from the start of the session, but then reversed course as U.S. stock markets slid on profit warnings, global inflationary concerns, and data that showed U.S. worker productivity fell sharply in the second quarter.

"There's a lot of global issues and we cannot ignore them and that puts a lot of downward pressure on global growth," Juan Perez, director of trading at Monex USA said of the dollar's safe haven appeal.

The big focus for traders is on Wednesday's U.S. Consumer Price Index report, which is expected to show that decades-high inflation eased in July following back-to-back 75-basis point hikes by the Fed in June and July.

But data on Friday showed that U.S. employers hired far more workers than expected last month, with wages still rising at a strong clip, boosting bets for another mammoth rate hike by the Fed at its Sept. 20-21 meeting.

Money-market futures show traders see about a two-thirds chance of a 75 bps hike next month.

"We've been getting consistently hotter-than-expected inflation reports and if that happens again, the market is not prepared for that," said Edward Moya, senior market analyst at Oanda. "If that happens, we're testing parity again against the euro," he said of the potential for more dollar strength.

The euro was up 0.2% at $1.0204, sterling dipped 0.12% to $1.2065. Versus the yen, the dollar was fell 0.14 at 135.195 yen.

Economists polled by Reuters see year-on-year headline inflation at 8.7% - relatively high, but below last month's 9.1% figure. The Fed targets inflation at 2%.

Heightened expectations for aggressive near-term hikes, have pushed short-dated Treasury yields further above long-term peers.

The gap between two and 10-year Treasury yields, a reliable recession indicator, has grown to its largest in two decades. [US/]

"The U.S. yield curve is inverted, suggesting recession down the line. But equity markets look as if they believe the Fed is going to stop soon and start cutting in 2023," said Mizuho senior economist Colin Asher.

"I think tomorrow's CPI data will suggest the Fed is not going to stop, which to me suggests weaker equity markets ahead which will limit any dip in the dollar in the next few months."

The dollar's safe haven status, though, makes the greenback's reaction a little harder to predict, especially as growth and geopolitical worries swirl.

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

China extended military drills near Taiwan, and the self-ruled island's foreign minister said China was using the drills launched in protest against U.S. House Speaker Nancy Pelosi's visit as an excuse to prepare for an invasion.

Elsewhere, Australia's dollar, viewed as a barometer of market risk, dropped 0.41% to $0.6955 and New Zealand's dollar slid 0.14% to $0.62765.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.