Dollar falls before the U.S. inflation data release

On Tuesday, the dollar index fell in choppy trading. In the meantime, on Wednesday, investors expected data tor the next primary indicator of whether increasing-price constraints are stimulating.

Data showed on Tuesday that the U.S. producer costs rose in October. This situation indicates that high inflation might continue for a while in the middle of tight supply chains because of the current pandemic.

However, traders held back on big moves before releasing consumer price index data on Wednesday morning.

There is an estimation that any kind of significant moves leading to the U.S. CPI will be unimportant. Senior FX strategist at TD Securities, Mazen Issa, said that there would be a little bit more progress on the FX side of things after CPI. As he mentioned, he expects a more robust print than consensus on things that are already expected to be a reasonably hot CPI print. Reuters polled economists, and the result sees monthly CPI accelerating to 0.5% from  0.3% increase in the previous month, with the closely watched year-on-year primary measure gaining 0.4 percentage points to 4.4%. This is entirely above the average annual 3% inflation target of the Fed. On Tuesday, Fed officials said that it does not seem to be clear that high inflation would become more established than they previously expected.

Mary Daly, San Francisco Fed President, said that he expects more clarity on the employment and inflation outlook to be by mid-2022. In the meantime, Neel Kashkari, Minneapolis Fed President, said in his opinion, some temporary events are going on. Those events are the forces currently keeping workers out of the labor market and driving prices higher.

Overview

The dollar index dropped 0.12% to 92.949, while the euro increased by 0.08% to $1.1595.

The yen finally moved to a one-month high of 112.74 against the greenback. It last traded at 112.84.

Sterling seemed a little changed on the day at $1.3562. However, last week it appeared hammered at the beginning of Bank of England’s surprise decision to maintain rates on hold.

The New Zealand dollar plunged 0.53% to $0.7134 after jumping on Monday. It has been getting attention from expectations that the Reserve Bank of New Zealand might increase rates by around 50 basis points by the end of this month.

The Australian dollar, which appears to be risk-sensitive, fell 0.61% to trade at $0.7379.

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