Dollar stays firm while yuan rebounds

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U.S. Inflation Impacting Fed's Policy

On Friday, the dollar seemed firm as traders bet the U.S. inflation figures could determine the route of interest rate increases next year. At the same time, the Chinese yuan recovered its base after the official policy knocked it back.

On Thursday, the euro fell 0.5% but remained steady in Asia at $1.1298.

The dollar index moved toward its seventh straight weekly rise at 96.198. Analysts expect around 6.8% annual price gains.

Consumer confidence data will appear this Friday.

RBC Capital Markets chief U.S. economist Tom Porcelli said inflation would accelerate. He thinks the annual pace will pick up and keep increasing to push near 7.5% early in 2022. He said that as a result, the combination means a hike at the beginning of the new year is possible. Porcelli noted that the market shows about a 40% chance of that, which is higher.

Bank of England, European Central Bank, Bank of Japan, and the Fed scheduled a meeting next week. The mixture of the possibility of a central bank response and the inflation data set market volatility levels surging.

Head of research at Pepperstone, Chris Weston, argued that traders are arranging for a higher CPI print judging by the Dollar trade rate, strengthening the idea that the Fed will boost the pace of tapering its QE program.

BUMPY

Volatility resulted from concerns about the new Omicron strain and China’s policy changes.

On Thursday, a slight rise in the yen pointed to constant caution. However, in earlier sessions, general ease of concern pushed the Aussie dollar up more than 3% this week. The Aussie regained back from 70 cents, reaching $0.7148.

The yen was steady at 113.52 per dollar, slightly above its 55-day moving average. 

The yuan dropped after the People’s Bank of China increased FX reserve requirements on Thursday.

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