Dollar sellers hit pause for US inflation data

The dollar found support following a bumpy few days and held firm in Tuesday’s Asia session while traders waited for US inflation data, which could push it higher if it bolsters rate hike bets.

A tumble in oil prices and gains overnight for stocks had knocked the dollar lower as investors rotated back into riskier assets.

The trade and sentiment-sensitive Australian dollar rose by nearly 1% through Monday to sit at US$0.6921 early on Tuesday and the New Zealand dollar rose even further to trade at US$0.5624, with both steady in morning Asia trade.

The euro jumped 0.7% overnight to US$1.1220, reversing a Friday fall when strong US jobs data lifted the dollar and interest rate expectations, and putting the euro/dollar pair roughly into the middle of a range it has held for a month.

The market is long dollars and the dollar index has gained this year as early expectations for US interest rate cuts quickly turned to bets on hikes after the US-Israeli war on Iran drove up energy prices and fuelled inflation.

A blowout October jobs report on Friday, with hiring more than twice forecasts, has markets pricing an 85% chance of a Federal Reserve rate increase next month.

US CPI awaited

Headline inflation is seen picking up to 3.9% and core to 2.8%, year-on-year, in October, according to economists polled by Reuters, so anything hotter than that will add to rate hike expectations and probably lift the dollar, analysts said.

“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, strategist at Westpac in Auckland.

Markets have priced two US hikes by the middle of next year, though the outlook has dimmed somewhat amid the recent turbulence in AI stocks on fears a Democratic sweep of Congress could lead to tighter regulation and slow the AI boom.

“This could be a factor that slows US growth in 2027 and helps put a top in for the dollar,” said Macquarie strategists Thierry Wizman and Gareth Berry in a note to clients.

Sterling, which has drawn support since the Bank of England hiked interest rates for the first time in three years last week, sat in the middle of a range it has traded in for almost a year and a half at US$1.3441.

Japan’s yen hovered at 157.97 per dollar, having been the best-performing G10 currency against the greenback over the past six months on the back of heavy official intervention.

Figures on Monday showed Japan sold US$97 billion in reserves defending the yen through late July and August as it traversed four-decade lows on the dollar. The threat of further dollar sales is keeping the currency steady, even as expectations for a December rate hike in Japan have lately faded.

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