US dollar rises as investors look to inflation report; yen gains

THE US dollar gained on Friday (Feb 10) as investors grew concerned about a US inflation report this week that could show a number that is higher than markets forecast amid data showing expectations for a continued rise in prices over the next year.

The yen also rose across the board with Kazuo Ueda reportedly set to become the next Bank of Japan (BOJ) governor but pared gains after he said the central bank’s monetary policy was appropriate. The Japanese unit was on track for its first weekly gain versus the US dollar after posting losses for three straight weeks.

As the data continued to show positive US momentum, the US dollar was on pace for its second weekly rise against a basket of six currencies, a run it has not seen since October.

The University of Michigan surveys on Friday showed a one-year inflation outlook of 4.2 per cent, higher than the final number in January. The overall index of consumer sentiment came in at 66.4, up from 64.9 the prior month.

Federal Reserve chair Jerome Powell has cited the Michigan survey’s inflation outlook as one of the indicators that the US central bank tracks.

Aside from the Michigan data, revisions showed that US monthly consumer prices rose in December instead of falling as previously estimated, while data for the prior two months was also revised higher, according to the Bureau of Labor Statistics.

Mazen Issa, senior FX strategist at TD Securities, said that this week’s CPI report has been “put in the crosshairs because this morning we had indications that...inflation was on a stronger footing than initially perceived last year”.

“This is really challenging the idea that the Fed could cut rates and stronger data like payrolls, ISM (Institute for Supply Management) and continued tightness in labour markets are pushing the...higher-for-longer policy stance by the Fed...and that might what ends up happening. That puts the dollar back on the front foot.”

Data this Tuesday is likely to show that the US consumer price index (CPI) climbing 0.4 per cent month-on-month in January and the core CPI gaining 0.4 per cent as well, according to a Reuters poll.

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In afternoon trading, the dollar index, which measures the greenback against six other currencies, was up 0.4 per cent at 103.55.

In Japan, the Nikkei had earlier reported the government would nominate academic Ueda to the BOJ’s top job, sending the yen surging as markets anticipated a possible earlier end to ultra-loose monetary policy. But in comments streamed online by Nippon TV, Ueda said the central bank’s current easy monetary policy was appropriate and that it should continue, prompting some of the earlier yen strength to be reversed.

Japanese Prime Minister Fumio Kishida said the government is planning to present the BOJ governor nominee to parliament on Tuesday, but did not answer a question on whether Ueda would be put forward.

“It is truly up in the air if major hawkish changes are coming to the BOJ,” said Juan Perez, director of trading at Monex USA in Washington.

The US dollar sank as low as 129.8 yen, a one-week trough, and was last slightly down at 131.435 yen. The euro and sterling both fell more than 1 per cent against the Japanese currency and were last down roughly 0.7 per cent at 140.34 yen and down 0.5 per cent at 158.60 yen, respectively.

The BOJ shocked markets in December when it raised the cap on 10-year government bond yields to 0.5 per cent from 0.25 per cent, doubling the band it would permit above or below its target of zero.

Since then, speculation has gathered pace that the BOJ could adjust or scrap its yield curve control policy, even though it refrained from any changes at its last meeting.

The pound was down 0.5 per cent at US$1.2056. Earlier in the session, Britain managed to avoid a technical recession, with the economy showing zero growth in the final three months of 2022. The euro fell 0.6 per cent to US$1.0679 and was set for a second straight week of losses. REUTERS