Dollar finds friends after sticky U.S. inflation readout

Dollar finds friends after sticky U.S. inflation readout

By Tom Westbrook

SINGAPORE (Reuters) – The dollar found some support on Wednesday after stubbornly high U.S. inflation suggested interest rates are going to remain high for longer than investors had expected.

Headline CPI was 0.5% in January mostly due to higher rental and food costs. That was in line with forecasts, though the annual figure of 6.4% was a bit more than expected and traders busily unwound bets on rate falling toward the end of 2023.

The U.S. dollar climbed to a six-week high of 133.30 yen and sat not far below that at 132.73 early in the Asia session. Other currency pairs were a bit more volatile but the greenback, which fell steadily in January, is holding its own.

“Inflation remains too high,” Commonwealth Bank of Australia strategist Joe Capurso said.

“A tentative deceleration in inflation is now harder to discern. There is not much good news for (the Fed) that is looking for inflation to head down much further towards its 2% target.”

Federal Reserve officials said the U.S. central bank will need to keep gradually raising interest rates to beat inflation.

“We must remain prepared to continue rate increases for a longer period than previously anticipated,” Dallas Fed President Lorie Logan said.

The euro was bumpy but ultimately unable to advance on the greenback and stayed at $1.0734. The U.S. dollar index hovered around its 50-day moving average at 103.26.

U.S. Treasuries were also volatile after the data, but selling persisted at the short end and in Fed funds futures to reflect new expectations that U.S. interest rates will rise beyond 5.2% this year and remain above 5%.

The New Zealand dollar fell a little to $0.6338.

The Australian dollar moved bumpily sideways also, with traders focused now on an appearance by central bank chief Philip Lowe before a parliamentary committee.

Later in the day British inflation is due, with a consensus forecast for annual headline CPI at a whopping 10.3% – more than five times the Bank of Englands 2% target.

Sterling was boosted overnight by strong wages data and last bought $1.2178. U.S. retail sales figures are also due and will gauge how the U.S. consumer is bearing the 450 basis points of Federal Reserve rate hikes in the past year.

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Currency bid prices at 0051 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0737 $1.0737 +0.00% +0.20% +1.0739 +1.0731

Dollar/Yen

132.7350 133.0200 -0.12% +0.00% +133.0900 +132.8200

Euro/Yen

142.53 142.89 -0.25% +1.59% +142.9600 +142.4900

Dollar/Swiss

0.9215 0.9215 +0.03% -0.31% +0.9220 +0.9214

Sterling/Dollar

1.2176 1.2176 +0.02% +0.00% +1.2180 +1.2172

Dollar/Canadian

1.3343 1.3338 +0.04% -1.52% +1.3346 +1.3336

Aussie/Dollar

0.6979 0.6985 -0.08% +2.39% +0.6989 +0.6977

nz

Dollar/Dollar 0.6327 0.6338 -0.16% -0.34% +0.6338 +0.6326

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; Editing by Himani Sarkar)

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