Sun, Sep 18, 2016 - Page 14 News List

US dollar reaches highest since July as inflation ticks up

Bloomberg

A gauge of the US dollar rose to its highest level since July after a report showed US inflation ticked up more than forecast.

The US currency rose against most of its G10 peers as the pace of consumer prices last month suggests inflation is moving closer to the US Federal Reserve’s 2 percent goal. The US central bank is set to hold a policy meeting on Tuesday and Wednesday, while Bank of Japan officials are scheduled to meet on Wednesday.

“Finally, a good number for the dollar,” said David Kohl, Julius Baer’s Frankfurt-based head of foreign-exchange research, commenting on the rising inflation figures. “The dollar story is related to what the Fed may do next week. People are increasingly looking at the data. When you want to construct a case for rate hikes, you go to” inflation.

Julius Baer forecasts the US dollar would climb to ¥106 by the end of the year.

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 of its major peers, rose 0.7 percent as of 5pm in New York, reaching its highest level since July 28. The greenback rose 0.8 percent to US$1.1155 per euro and added 0.2 percent to ¥102.29.

The consumer price index (CPI) climbed 0.2 percent last month after being little changed in July. Core CPI excluding volatile food and fuel costs increased 2.3 percent from August last year, after rising 2.2 percent in the prior 12-month period.

Futures show a 54 percent chance the Fed will raise rates this year, according to data compiled by Bloomberg, based on the assumption that the effective fed funds rate will trade at the middle of the new Federal Open Market Committee target range after the next increase.

That is down from a recent high of 65 percent on Aug. 26, after Fed Chair Janet Yellen said the case for tightening had “strengthened.”

“The major dollar-crosses strengthened a bit, but I think at the end of the day, we are just looking at the major event risk next week on the Fed and BOJ,” said Mazen Issa, a senior foreign-exchange strategist at Toronto-Dominion Bank in New York. “I don’t think we are there yet to affect the Fed moving and our official call is in December.”

In Taipei, the currency markets were closed on Thursday and Friday for the Mid-Autumn Festival holiday. The US dollar closed at NT$31.689 on Wednesday, down NT$0.017 from Tuesday, but up NT$0.137 from NT$31.552 on Sept. 9.

RATE WATCH

In the UK, fallout from the Brexit is set to take a backseat, as investors shift their focus to the Fed’s and the BOJ’s policy decisions.

The decisions come after the Bank of England this week kept its key interest rate and asset-purchase target unchanged, while signaling that further easing cannot be ruled out. That sentiment helped drive the UK currency down by the most in two months versus the US dollar.

“As we await fresh direction from the Fed and BOJ, risk sentiment remains fragile, undermining those currencies which are risk or carry sensitive,” said Jeremy Stretch, the London-based head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “We are seeing the pound under pressure due to its sizable current-account shortfall, which remains set against presumptions of still-lower rates ahead.”

The pound fell 1.3 percent this week to US$1.3089 as of 5pm in London on Friday, the steepest decline since July 8. It depreciated 0.7 percent to £0.8526 per euro.

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