The dollar nudged higher on Tuesday after Federal Reserve Governor Christopher Waller backed a December rate hike, with US inflation data due. Markets now fully price that hike, and the October reading could set the dollar's direction in the coming weeks.
The dollar nudged higher on Tuesday after a bumpy few days, helped by hawkish remarks from Waller. The data ahead could lift it further if bets on a rate hike strengthen.
Waller pushes for a December hike
Waller said on Tuesday the central bank ought to raise short-term borrowing costs next month, even if inflation cooled last month. He added that the Fed should consider an upsized half-point hike if the inflation picture worsened.
As a result, markets are now fully pricing a December rate hike. The remarks gave the dollar a small lift, but traders stayed cautious ahead of the data.
Currencies edge lower against the dollar
The euro was 0.1% lower at $1.1215, while the pound lost 0.15% to $1.3423. The dollar also gained around 0.2% on both the yen and the Swiss franc, trading at 158.2 yen and 0.8209 francs.
The calm followed a dramatic couple of sessions. A blowout October jobs report on Friday, with hiring more than twice the forecasts, sent the dollar surging and pushed the euro down 0.7%. On Monday, however, a tumble in oil prices and gains for stocks knocked the dollar lower.
The Australian dollar rose by nearly 1% through Monday to $0.6918 on Tuesday. The New Zealand dollar gained even more, reaching $0.5634, as election results suggested the incumbent three-party coalition would stay in power.
Inflation data decides the next move
Economists polled by Reuters expect headline consumer inflation to pick up to 3.9% and core inflation to 2.8% year-on-year in October. A miss on either side would shape the dollar's direction in the coming weeks.
Lee Hardman, senior currency analyst at MUFG, said a third stronger core CPI print would add to concerns that higher energy prices are spilling over into broader inflation pressure. According to Hardman, a downside surprise "would reinforce the selling momentum that we’ve seen over the last 24 hours".
Source: Economy News
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