* U.S. dollar index down 0.7%* U.S. consumer prices increase strongly in December(Updates to U.S. afternoon)By Saqib Iqbal AhmedNEW YORK, Jan 1
* U.S. dollar index down 0.7%
* U.S. consumer prices increase strongly in December
(Updates to U.S. afternoon)
By Saqib Iqbal Ahmed
NEW YORK, Jan 12 (Reuters) – The dollar fell to a two-month
low against a basket of currencies on Wednesday after data,
which showed an expected surge in U.S. consumer prices in
December, fell short of offering any new impetus for the Federal
Reserve’s policy normalization efforts.
The U.S. Dollar Currency Index, which tracks the
greenback against six major currencies, was down 0.7% at 94.944,
after slipping as low as 94.903, its lowest since Nov. 11.
U.S. consumer prices surged in December, with the annual
increase in inflation the largest in nearly four decades, which
could bolster expectations that the Federal Reserve will start
raising interest rates as early as March.
The consumer price index increased 0.5% last month after
advancing 0.8% in November, the Labor Department said on
Wednesday. In the 12 months through December, the CPI surged
7.0%, the biggest year-on-year increase since June 1982.
Economists polled by Reuters had forecast the CPI gaining 0.4%
and shooting up 7.0% on a year-on-year basis.
“The U.S. economy appears ready for interest rate lift-off
to start in March,” said Joe Manimbo, senior market analyst at
Western Union Business Solutions.
“The dollar’s problem though is that the market already has
highly hawkish expectations for Fed policy this year. So as hot
as today’s CPI price was, it merely reinforced what’s already
baked in for the dollar and Fed policy,” Manimbo said.
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 U.S. rate-hike
expectations in recent weeks.
“(It’s) just a case of the market currently getting too
ahead of itself with Fed normalization; we will need to see this
inflationary impact from Omicron really play out for the Fed to
hike four times and embark on quantitative tightening this year
I think,” said Simon Harvey, senior FX market analyst at Monex
Europe.
“While we don’t think today’s CPI release will derail the
Fed’s likely liftoff in March, continued reports of narrow
inflation pressures will likely lead markets to trim
expectations of the normalization cycle across 2022 as a whole,
which will undoubtedly result in sustained USD depreciation,”
Harvey said.
Traders have priced in an about 80% chance of a rate hike
in March, according to CME’s FedWatch tool.
The Australian dollar, often considered a liquid
proxy for risk appetite, rose 1.04% to a one-week high against
the U.S. dollar. The weaker greenback and higher oil prices
helped lift the Canadian dollar to its highest level in
nearly two months.
And sterling was 0.56% higher, helped by the weaker
dollar and a view that the worst of the Omicron COVID-19 surge
may be passing in Britain – helping pave the way for another
near-term rise in UK interest rates.
Elsewhere, bitcoin was 2.3% higher at $43,717.08,
extending its rebound from the five-month low touched on Monday.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by
Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci and Jonathan
Oatis)
www.lse.co.uk