Dollar Up, Investors Look to U.S. Inflation Data for Fed Rate Hike Clues

© Reuters

By Gina Lee

Investing.com – The dollar was up on Monday morning in Asia starting the week strong as investors bet U.S. inflation data and appearances from several U.S. Federal Reserve officials would bolster the case for hiking interest rates.

The U.S. Dollar Index Futures that tracks the greenback against a basket of other currencies edged up 0.19% to 95.905 by 11:22 PM ET (4:22 AM GMT).

The USD/JPY pair was up 0.23% to 115.81. Japanese markets were closed for a holiday.

The AUD/USD pair was up 0.27% to 0.7198 while the NZD/USD pair inched down 0.07% to 0.6775.

The USD/CNY pair inched down 0.06% to 6.3738, with China’s consumer and producer price indexes due on Wednesday.

The USD/GBP pair inched up 0.02% to 1.3588.

Atlanta Fed President Raphael Bostic, City Fed President Esther George, St. Louis Fed President James Bullard, Richmond Fed President Thomas Barkin, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans, and New York Fed President John Williams will all speak throughout the week.

Fed Chairman Jerome Powell and governor Lael Brainard will also separately testify before Senate committees this week regarding their nominations as the Fed chair and deputy chair respectively.

The dollar met with some selling after a weaker-than-expected U.S. jobs report for December, including non-farm payrolls, squeezed investors out of long dollar positions. Investors now await inflation data, including the consumer price index, later in the week.

"The dollar index is likely to recoup some of its Friday losses this week on Powell's likely hawkish commentary and rising U.S. inflation," Scotiabank FX strategist Qi Gao told Reuters.

However, the greenback would probably run out of steam eventually, and the index head towards 94 once money markets fully price in a Fed hike in March 2022, he added.

Across the Atlantic, the pound was also slightly weaker on the dollar. However, it has been rallying over bets that the Bank of England (BOE) will likely hike its rates in step with the Fed.

MUFG analysts reckon investors are too hawkish on their rates expectations for the BOE but believe that the pound will be able to hold its own.

"We still expect two rate hikes by the BOE which should keep EUR/GBP under modest downward pressure, which will result in GBP/USD advancing to around the 1.4000 level," they said in an outlook note.

U.S.-Russia tensions over Ukraine are also on investors’ radars, with talk unlikely to end in a compromise and an armed confrontation likely.