US dollar off lows as US inflation test looms

London

THE US dollar steadied above almost 2-month lows against its major peers on Wednesday (Jan 12), ahead of data expected to show a fresh surge in US inflation that could seal the case for an early rise in interest rates.

Federal Reserve chair Jerome Powell on Tuesday gave no clear indication that the Fed was in a rush to speed up plans for tightening monetary policy, putting some downward pressure on the greenback which has benefited from US rate-hike expectations in recent weeks.

The US dollar index was last trading at 95.643, steady on the day above the 95.533 low hit during the Asian session, the lowest since Nov 18.

Headline US consumer price index (CPI) is forecast at a red-hot 7 per cent on a year-on-year basis, which would be the highest annual CPI number since 1982. ING currency strategist Francesco Pesole said since an inflation print above 7 per cent is expected by markets, the immediate reaction in currency markets should be contained.

Fed chief Powell said, in a testimony at his renomination hearing on Tuesday, that the US economy was ready for higher interest rates and a run-off of its asset holdings - dubbed quantitative tightening - to combat inflation.

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Money markets currently price about 85 per cent odds of a rates lift-off by March, and a total of at least three quarter-point hikes by year-end.

The US dollar was just 0.1 per cent firmer at 115.40 yen, while the euro was steady at around US$1.1364. A rise above US$1.1387 would take the single currency to its highest since mid-November.

The Australian dollar, often considered a liquid proxy for risk appetite, pulled back from almost one-week highs at US$0.72230 as the US dollar regained its footing.

But the greenback was stuck at 2-month lows against the Canadian dollar at 1.25345.

And sterling was steady having risen to US$1.3645 for the first time since Nov 4, bolstered by a view that the worst of the Omicron Covid surge maybe be passing in Britain - helping pave the way for another near-term rise in UK interest rates. REUTERS