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Dollar steadies in calm before CPI and central bank storm
Global Banking & Finance Review®
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By Tom Westbrook
SINGAPORE (Reuters) – The dollar was firm on Tuesday leading in to the release of U.S. inflation data and the final Federal Reserve meeting of the year, with investors waiting to update interest rate outlooks.
A month ago, a small surprise to the downside unleashed a wave of bond-buying and dollar selling on the expectation that inflation had peaked. The U.S. figures, due at 1330 GMT, will test that assumption, while the Fed decision on Wednesday should provide some reasonably instant feedback from policymakers.
The dollar gained 0.8% on the yen on Monday and was steady at 137.70 yen through the Asia session on Tuesday. It also held onto gains versus the Australian dollar at $0.6759. [AUD/]
Economists polled by Reuters expect November core inflation to be steady at 0.3% month-on-month but see moderation in the annual pace, with headline prices seen 7.3% higher than a year earlier.
“A miss in either direction may get the markets to assume a follow-up reaction from the Fed,” said NatWest Markets’ head of economics and strategy, John Briggs.
The U.S. dollar has been supported by high and rising interest rate expectations as the Fed has hiked its benchmark funds rate to counter inflation, leaving the currency vulnerable to selling if inflation seems to be cooling.
The dollar index hovered at 105.01 on Tuesday, down from a 20-year high of 114.78 in late September.
Market projections for the peak in U.S. interest rates have also slipped, with futures pricing indicating the Fed funds rate – currently set between 3.75% and 4% – staying below 5%.
The Fed is widely expected to hike the funds rate by 50 basis points on Wednesday, a step down in pace after four consecutive 75 bp hikes.
The euro, meanwhile, was steady at $1.0539, as was sterling at $1.2268. The Swiss franc was at 0.9360 per dollar as traders eyed Thursday meetings of the European Central Bank, Bank of England and Swiss National Bank.
Like the Fed, all are expected to hike by 50 bps.
Later on Tuesday, British labour data is due, as well as surveys of German business conditions and sentiment.
The New Zealand dollar was steady at $0.6386. The Chinese yuan slipped a bit on Monday as enthusiasm about China’s COVID-19 re-opening prospects started to waver, even though Hong Kong relaxed some of its restrictions. [CNY/]
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Currency bid prices at 0534 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar
$1.0541 $1.0539 +0.00% +0.00% +1.0554 +1.0532
Dollar/Yen
137.6800 137.6700 +0.17% +0.00% +137.9600 +137.5600
Euro/Yen
145.14 145.04 +0.07% +0.00% +145.3200 +144.9100
Dollar/Swiss
0.9359 0.9363 -0.02% +0.00% +0.9368 +0.9354
Sterling/Dollar
1.2270 1.2274 -0.05% +0.00% +1.2290 +1.2254
Dollar/Canadian
1.3624 1.3633 -0.07% +0.00% +1.3644 +1.3613
Aussie/Dollar
0.6761 0.6747 +0.22% +0.00% +0.6774 +0.6740
NZ
Dollar/Dollar 0.6388 0.6384 +0.05% +0.00% +0.6405 +0.6375
All spots
Tokyo spots
Europe spots
Volatilities
Tokyo Forex market info from BOJ
(Reporting by Tom Westbrook; Editing by Kenneth Maxwell)
Foreign exchange, or forex, refers to the global marketplace for trading national currencies against one another. It is the largest financial market in the world, facilitating international trade and investment.
Interest rates are the cost of borrowing money or the return on investment for savings. They are expressed as a percentage and can influence economic activity, including spending and investment.
Central banks are national institutions that manage a country's currency, money supply, and interest rates. They also oversee the banking system and implement monetary policy to ensure economic stability.
Core inflation measures the long-term trend in the price level by excluding volatile items such as food and energy prices. It provides a clearer view of underlying inflation trends.
Financial markets are platforms where buyers and sellers engage in the trade of financial assets, such as stocks, bonds, currencies, and derivatives. They play a crucial role in the economy by facilitating capital allocation.
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