Dollar near 1-week high on expectation of hawkish Fed

London

THE US dollar stood just off a 1-week high on Tuesday (Dec 14) versus a basket of major currencies on expectations of a hawkish Federal Reserve meeting and uncertainty about the Omicron coronavirus variant.

Data later in the day on US factory gate inflation may cement expectations the Fed will announce an accelerated tapering of its stimulus, allowing it to wrap up bond buying around March and proceed with rate hikes.

The producer price index, which has been a fairly reliable forward indicator for consumer inflation, may have surged above 9 per cent on a headline level in November as higher oil prices bit, up from 8.6 per cent in October and 1.9 per cent in January.

Some relief on the Covid-19 front - Pfizer said final analysis of its antiviral pill showed its effectiveness including against the new Omicron variant - pushed the dollar off earlier highs but it is seen benefiting, at least in the near term, from a more aggressive Fed policy stance versus central banking peers.

By 1130 GMT, the dollar index, which measures the currency against 6 peers, was down 0.2 per cent at 96.139, having earlier risen to 96.493, the highest since Dec 7.

The Fed's 2-day meeting starting later on Tuesday headlines a string of policy decisions this week, from central banks such as the European Central Bank (ECB), Bank of England (BOE), the Swiss National Bank (SNB) and the Bank of Japan (BOJ).

But while money markets price good odds of a Fed rate hike by June, no moves are expected any time soon from the ECB, BOJ or SNB, while the Omicron threat could force the BOE to postpone a rate hike until February.

The euro firmed 0.3 per cent to US$1.1319 after touching a 1-week low of US$1.12605 overnight. Germany's Ifo institute on Tuesday predicted the German economy to shrink by 0.5 per cent quarter-on-quarter in the final 3 months of this year, and to stagnate in the first 3 months of next year.

The dollar was little changed at 113.520 yen, though sterling rose 0.3 per cent after data showed employers hired a record number of staff in November.

Mainland China, meanwhile, detected its first Omicron case, but offshore-traded yuan firmed 0.12 per cent versus the dollar, bucking a weaker official guidance rate. REUTERS