U.S. dollar weakened Wednesday while Japanese Yen rallied

The U.S. dollar struggled against the other major currencies on Wednesday after declining over the past three days. It exchanged hands near a one-month low to the Japanese yen. Traders are awaiting U.S. inflation data for some clues as to when the Federal Reserve might begin raising interest rates. Meantime, they avoided sharp moves. At the same time, global stocks retreated from a record high as soaring oil prices stoked inflation concerns. The safe-haven yen benefited from that.

On the other hand, the riskier Australian and New Zealand dollars plummeted down. Renewed worries of potential contagion from China’s property market struggles also fueled traders’ need for safer assets.

The greenback lowered slightly to 112.83 yen today. It still may drop back to Tuesday’s low of 112.73; a level last reached on October 11. Furthermore, the dollar index tumbled down to 94.053 against the basket of six major rivals, after falling from a more than one-year high at 94.634 reached briefly on Friday.

In Europe, the common currency also shaved off 0.13% to $1.15805. Despite that, the Euro managed to hold on to most of a three-day gain. It remained close to the month’s high of $1.16165 over the past several days.

U.S. consumer price index data for October is due for release later Wednesday. Analysts expect a 0.4% increase in the October index, which would be much more than a 0.2% rise in the previous month. Moreover, the year-on-year core measure may show a gain of 0.3 percentage point to 4.3%. That would be well above the Federal Reserve’s average annual 2% inflation target.

Inflation is still high. How will it influence the market?

Investors are watching closely global inflation readings for hints of whether soaring price pressures are showing signs of waning or accelerating. At the same time, the agency policymakers and other officials are still mostly holding to the view that current high prices will prove to be transitory.

The head of research at brokerage Pepperstone in Melbourne, Chris Weston, noted that the market needs to see a print of 0.8% month-on-month for the dollar index to break out of the top of the range of 94.50. Even though the greenback has been trending lower against the Japanese currency, if American CPI comes in hot, that poses a substantial risk to USD/JPY pair shorts.

Meanwhile, China’s October factory gate prices surged forward at the fastest pace since 1995. The new data beat forecasts. It also further squeezed profit margins for producers struggling with rallying coal prices and other commodity costs.

On Tuesday, data showed U.S. producer prices rose solidly in October. This report indicates that high inflation could persist amidst tight supply chains caused by the coronavirus pandemic. On Wednesday, U.S. Treasury real yields plummeted down sharply. Before that, Fed officials announced that it was not clear whether high inflation would become more entrenched than expected or not.

It may be mid-2022 before there is more clarity on the inflation and employment outlook, – noted San Francisco Fed President Mary Daly. On the other hand, Minneapolis Fed President Neel Kashkari thinks that the forces keeping citizens out of the labor market and boosting prices higher will be temporary.

U.S. President Joe Biden met with potential next Fed Chair

President Biden recently met with Fed Governor Lael Brainard. The latter is a potential next Fed Chair. Analysts consider Brainard a dovish pick. According to Westpac strategists, Brainard’s possible nomination as Fed Chair is weakening the greenback. Still, the underlying picture is USD supportive thus far. Moreover, they think a decline in the dollar index to the mid-93 level is a buying opportunity.

While the dollar’s position is still more or less unclear, depending on analysts’ views, the Sterling remains steady. It declined sharply last week due to the Bank of England’s surprise decision to keep rates unchanged. However, the British Pound has been stable this week. It traded at $1.35495 on Wednesday, higher from Friday’s more than one-month low of $1.3425.

On the other hand, the Australian dollar tumbled down by 0.33% to $0.7355. It briefly touched $0.73545 for the first time since October 13. The New Zealand dollar also dropped by 0.36% to $0.7104.

In China, concerns of contagion in the ailing property sector have risen again. The Fed has sent its first direct warning about potential global damage. Evergrande has a deadline on Wednesday to pay an offshore bond. But Kaisa Group pleaded for help to pay loans, employees, and suppliers on Tuesday.