Dollar Rises as U.S. Inflation Test Looms

On Tuesday, Federal Reserve Chair Jerome Powell gave no clear sign that the Fed was in a rush to run up plans for tightening monetary policy, putting some downward pressure on the dollar, which has profited from U.S. rate-hike expectations in recent weeks.

And the currency began to press higher again as the December U.S. consumer price index (CPI), expected out at 1330 GMT, dominated.

The dollar index was last trading at 95.643, even on the day passed the 95.533 low hits during the Asian session, the most down since Nov. 18.

Headline U.S. CPI is at a red-hot 7% year-on-year basis. This would be the highest yearly CPI number after 1982.

ING currency strategist Francesco Pesole stated that an inflation print beyond 7% should come from markets. Hence, the immediate reaction in currency markets should be contained.

But he said policymakers were still discussing approaches to reducing the Fed’s balance sheet. It could sometimes require two, three, or four meetings to make such determinations.

Money markets currently price nearly 85% odds of a rates lift-off by March and a total of at least three quarter-point hikes by year-end.

April LaRussa, head of fixed income investment specialists at Insight Investment, stated that recent comments from businesses indicated they faced higher price pressures from raw materials and wages, for instance.

Other Currency News

The Australian dollar is often a liquid proxy for risk appetite. It pulled back from nearly one-week highs at $0.72230 as the dollar recovered its footing.

But the dollar was stuck at two-month lows versus the Canadian dollar at 1.25345.

And sterling was constant, having grown to $1.3645 for the first time since Nov. 4, supported by a view that the worst of the Omicron COVID surge maybe be passing in Britain – helping pave the way for another near-term incline in U.K. interest rates.