US dollar up after inflation data boost

THE US dollar touched a one-week high against a basket of currencies on Friday, extending its gains from the previous session when hot US consumer prices data reinforced expectations that the Federal Reserve may have to keep interest rates higher for longer.

The consumer price index (CPI) rose 0.4 per cent in September, keeping the annual rate at 3.7 per cent, the same as in August, while economists polled by Reuters had forecast it would gain 0.3 per cent on the month and 3.6 per cent year on year.

The dollar index, which measures the US currency against six of its major peers, ticked up 0.11 per cent to 106.63. The index, which jumped 0.8 per cent on Thursday, its biggest one-day rise since March 15, is on pace to finish the week up 0.5 per cent.

The dollar was also helped by safe-haven buying driven by the escalating Middle East conflict as Israel urged civilians to leave the northern Gaza Strip. “Our sense is that the greenback’s renewed strength in large part also reflects growing economic and geopolitical uncertainty in the wake of the new war between Hamas and Israel,” Jonas Goltermann, deputy chief markets economist at Capital Economics, said in a note.

Data on Friday showed US consumer sentiment deteriorated in October, with households expecting higher inflation over the next year, but labour market strength was likely to continue supporting consumer spending.

Thursday’s boost to the greenback saw the yen head back toward the sensitive 150 level it briefly touched recently before strengthening sharply, which led some to believe authorities were intervening in the market. The Japanese yen was last up 0.21 per cent at 149.5 per dollar, with traders on guard for any signs of weakness.

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Dollar holds inflation driven gains, yen within touching distance of 150

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Investors also digested producer and consumer prices data out of China on Friday that showed deflationary pressures were slightly stronger than expected. The offshore Chinese yuan was flat at 7.3114 per dollar.

The Australian dollar was last down 0.23 per cent at US$0.6299. REUTERS