Greenback edges up after US consumer prices rise more than expected
THE US dollar strengthened on Thursday (Oct 12) after the country’s consumer prices rose more than expected in September, influenced by higher petrol prices, suggesting the Federal Reserve may keep interest rates elevated for some time.
The consumer price index (CPI) increased 0.4 per cent last month, after jumping 0.6 per cent in August, which was the largest increase in 14 months.
The US dollar index rose 0.379 per cent at 106.060, while the euro was down 0.4 per cent to US$1.0575.
The rise in the greenback follows recent weakness that was driven by declining Treasury yields, as bond prices rallied on the Fed’s softer stance on future rate rises. Bond yields move opposite to their price.
The yield on 10-year Treasury notes was down a touch at 4.575 per cent. It hit its highest since 2007 last week at 4.887 but is down more than 20 bps this week.
Currency investors were also looking at sluggish British growth figures, which showed the economy partially recovered in August after a sharp drop in July.
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The pound initially did not significantly react, but was last down 0.16 per cent at US$1.2294.
The pound was the best performing G-10 currency in the first half of this year, thanks to better-than-expected economic data and sticky inflation that drove expectations the Bank of England (BOE) would be increasing rates for longer than most peers.
It then had its worst month in a year in September, as those factors reversed, before steadying this month.
“Without a growth pickup, inflation is likely to continue cooling back towards the BOE’s target, and a final rate hike this year looks risky given current economic weakness,” said Nick Rees, FX market analyst at Monex Europe.
“FX markets appear of a similar view.”
Thursday’s CPI release comes after Wednesday’s mixed report on US producer prices, and minutes from the Fed’s September meeting.
Fed officials pointed to uncertainties around the economy, oil prices and financial markets as supporting “the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate”, the minutes showed.
The Swiss franc was set to strengthen for the seventh successive session, the longest streak since July 2020. REUTERS
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