Dollar near one-week low after soft US inflation

London

THE US dollar traded near a one-week low against peers on Wednesday after softer-than-expected US inflation figures tempered immediate expectations about Federal Reserve tapering while disappointing Chinese data weighed on the yuan and Aussie.

The dollar index stood at 92.536, about 0.2 per cent lower on the day from Sept 14, when it dropped following the inflation data only to recover on haven demand as stocks slid on Wall Street.

The index has meandered between 92.3 and 92.9 over the past week as several Fed officials have suggested that the US central bank could reduce its buying of debt securities by the end of the year, even after a much-weaker-than-expected payrolls report at the start of the month.

While elevated inflation has kept pressure on policymakers, data overnight showed the US consumer price index, excluding the volatile food and energy components, edged up just 0.1 per cent last month.

The Federal Open Market Committee holds its monetary policy meeting next week, with investors keen to find out whether a tapering announcement will be made.

Tapering tends to benefit the dollar as it suggests the Fed is one step closer towards tighter monetary policy. It also means that the central bank will be buying fewer debt assets, effectively reducing the number of dollars in circulation.

One euro bought US$1.1821 on Wednesday, about 0.1 per cent higher from the previous session.

European Central Bank chief economist Philip Lane speaks at an Institute for Monetary and Financial Stability webinar later in the day.

The dollar slipped to a 4-week low of 109.22 yen.

Meanwhile, the yuan and the Australian dollar were knocked lower after Chinese data showed factory and retail sales growth cooled more sharply than expected last month.

Adding to the broader China worries in financial markets was a media report that embattled property developer China Evergrande Group won't be able to make interest payments on its debt next week.

The yuan extended its decline for the day to as far as 6.4433 yuan per dollar before trading about 0.1 per cent weaker at 6.4410, threatening to snap a five-day string of gains.

The Aussie sank as low as US$0.73015 for the first time in more than two weeks following China's data, but recovered to be little changed at US$0.7320. REUTERS