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Dollar Pushes Higher; U.S. CPI Release in Focus

Forex Nov 10, 2021 02:54AM ET
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By Peter Nurse - The dollar edged higher in early European trade Wednesday, with producer price inflation data in both the U.S. and China weighing on risk sentiment, and with investors mindful that U.S. consumer price inflation - data for which are due later - is also close to a 30-year high.  

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 94.130, still some way before Friday’s peak of 94.645, its highest level for over a year.

EUR/USD dropped 0.2% to 1.1568, USD/JPY rose 0.2% to 113.09, still not far removed from Tuesday's low of 112.73, a level last seen on Oct. 11. GBP/USD edged lower to 1.3553, and the risk sensitive AUD/USD fell 0.2% to 0.7360.

The safe haven greenback has benefited from a bout of risk aversion, with global stocks retreating from record levels. Additionally, fears of potential contagion from China's property market worries are growing after developer Fantasia Holdings warned Wednesday it might not be able to meet its debt obligations.

The country’s biggest developer China Evergrande Group also faces its biggest solvency test yet Wednesday, with over $148 million of coupon payments due on three dollar bonds. 

That said, most eyes are on the release of the U.S. consumer price index data for October later in the season, especially after U.S. factory gate prices remained at elevated levels on Tuesday. This reminded the market that inflation remains a live issue, with the Federal Reserve still having to decide when to start raising interest rates as the economy recovers.

Economists expect the headline October CPI index to climb 0.4% on the month, accelerating from a 0.2% rise in the previous month, with the closely watched year-on-year core measure gaining 0.4% to 4.3%, well above the Fed's average annual 2% inflation target.

The Federal Reserve insisted at its recent policy-setting meeting that it was still too early to raise rates, a view that the likes of San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari repeated this week.

By contrast, St. Louis Fed President James Bullard took a more hawkish view, calling for  two rate hikes in 2022.

"If inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control," Bullard said Monday in an interview on Fox Business Network. 

Elsewhere, USD/CNY edged higher to 6.3935 after data from China showed that the country's factory gate inflation hit a 26-year high in October.

Dollar Pushes Higher; U.S. CPI Release in Focus

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