Dollar finds a bid ahead of U.S. inflation

By Tom Westbrook

SINGAPORE (Reuters) – The dollar made small but broad gains on Tuesday and held a resurgent euro at bay as traders awaited U.S. inflation data, wary it could unleash bets on faster interest rate hikes.

The common currency leapt 2.7% last week after a hawkish shift in tone at the European Central Bank.

But it has been unable to breach resistance around $1.1483 and eased by 0.2% to $1.1418 during the Asia session. The dollar edged 0.3% higher to 115.43 yen, helped by five and 10-year Treasury yields ticking to more than two-year highs.

Stunningly strong U.S. labour data last week has put extra focus on inflation – forecast at a four-decade high 7.3% – in the lead up to March’s Federal Reserve meeting.

Futures markets are pricing an almost 1-in-3 chance of a 50 basis point rate rise and the prospect of aggressive hikes has been supporting the dollar.

“The surprise beat by the non-farm payroll numbers (which we were warned by Fed officials and the White House would be very weak due to Omicron) leaves the Fed in an unexpected territory,” said NatWest Markets rates strategist Jan Nevruzi.

“The CPI will be critical on how the narrative develops until the March (meeting),” he said, though adding that barring a big surprise, March will probably bring only a 25 basis points hike.

The U.S. dollar index rose 0.2% to 95.613.

On Monday, bitcoin and the Australian dollar had posted gains as equity markets rallied in Europe, but the latter was a bit softer on Tuesday as a cautious mood prevailed in Asia.

The Aussie fell 0.2% to $0.7109. [AUD/]

Bitcoin punched through its 50-day average to top $44,000 for the first time in nearly a month on Monday and held there in Asia for a gain of more than 17% in four sessions.

The New Zealand dollar was marginally softer at $0.6630. Sterling eased 0.2% to $1.3514.

A quiet data calendar awaits on Tuesday, with a U.S. small business survey due later in the day. U.S. inflation data is due on Thursday.

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Currency bid prices at 0546 GMT

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

Previous Change

Session

Euro/Dollar

$1.1419 $1.1442 -0.20% +0.44% +1.1448 +1.1418

Dollar/Yen

115.4400 115.1050 +0.23% +0.31% +115.4750 +115.1900

Euro/Yen

131.82 131.68 +0.11% +1.15% +132.0000 +131.5900

Dollar/Swiss

0.9251 0.9235 +0.18% +1.43% +0.9252 +0.9228

Sterling/Dollar

1.3514 1.3535 -0.16% -0.08% +1.3538 +1.3513

Dollar/Canadian

1.2694 1.2667 +0.22% +0.41% +1.2701 +1.2666

Aussie/Dollar

0.7111 0.7126 -0.20% -2.17% +0.7138 +0.7107

NZ

Dollar/Dollar 0.6631 0.6635 -0.05% -3.11% +0.6654 +0.6631

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook. Editing by Lincoln Feast.)