Dollar holds steady as investors await US inflation data
Photo: Reuters
The US dollar steadied in Asian trading on Tuesday after several volatile sessions as investors awaited US inflation data that could strengthen expectations of interest rate hikes and provide fresh support for the currency.
A decline in oil prices and overnight gains in global stock markets had weakened the dollar on Monday as investors shifted back towards riskier assets.
The Australian dollar, which is sensitive to trade conditions and investor sentiment, gained nearly 1 percent on Monday to reach $0.6921 early on Tuesday. The New Zealand dollar advanced further to $0.5624. Both currencies remained largely unchanged during the Asian morning session.
The euro rose 0.7 percent overnight to $1.1220, recovering from Friday’s decline after stronger-than-expected US employment figures boosted the dollar and expectations of higher interest rates. The euro-dollar exchange rate returned to roughly the middle of a range it has maintained over the past month.
The dollar has attracted significant investor interest this year. Expectations of US interest rate cuts at the beginning of the year quickly shifted towards potential rate increases after the US-Israeli war on Iran pushed up energy prices and fuelled inflation.
A stronger-than-expected US employment report released on Friday showed that hiring was more than twice the forecast level. Following the report, financial markets began pricing in an 85 percent probability of a Federal Reserve rate hike next month.
US Inflation Data in Focus
Economists surveyed by Reuters expect annual headline inflation to rise to 3.9 percent in October, while core inflation is projected to reach 2.8 percent.
Analysts said inflation figures exceeding these forecasts could strengthen expectations of higher interest rates and push the dollar further up.
“You can only put a little bit more (in the price) in December, but the price for meetings into the future could go higher,” said Imre Speizer, a strategist at Westpac in Auckland.
Markets have already priced in two US rate increases by the middle of next year. However, expectations have weakened somewhat amid recent volatility in artificial intelligence stocks. Concerns that Democrats could gain control of Congress and introduce tighter regulations have also raised questions about the future pace of AI industry growth.
“This could be a factor that slows US growth in 2027 and helps put a top in for the dollar,” Macquarie strategists Thierry Wizman and Gareth Berry said in a note to clients.
All three major Wall Street indexes gained more than 2 percent on Monday.
Meanwhile, sterling traded at $1.3441, remaining within a range it has maintained for nearly 18 months. The British currency has received support since the Bank of England raised interest rates for the first time in three years last week.
The Japanese yen hovered at 157.97 against the dollar. It has been the best-performing Group of 10 currency against the greenback over the past six months, supported by substantial government intervention.
Figures released on Monday showed that Japan had sold $97 billion from its foreign exchange reserves to support the yen through late July and August as the currency fell to its weakest level against the dollar in four decades.
The possibility of further intervention has helped keep the yen relatively stable, even as expectations of a Japanese interest rate hike in December have recently weakened.
Source: Reuters (Adapted)
