The US dollar index lost some ground on Friday after US consumer prices increased roughly in line with expectations last month as investors, who had feared a much higher inflation reading, bet that the actual number would not change the pace of interest rate hikes.
In Taipei, the New Taiwan dollar fell against the greenback, losing NT$0.027 to close at NT$27.737 per US dollar, little changed from last week’s NT$27.723.
US Department of Labor data showed an increasing consumer price index (CPI) as the cost of goods and services rose broadly amid supply constraints for the largest annual gain since 1982.
The CPI rose 0.8 percent last month after surging 0.9 percent in October, while in the 12 months through last month, it rose 6.8 percent, following a 6.2 percent advance in October. This compared with a 0.7 percent forecast from economists polled by Reuters.
“Coming into the report, there was some concern it might have been a little hotter,” TD Securities senior foreign exchange strategist Mazen Issa said. “Given how the dollar traded ahead of the report, this is more of a relief rally from the other currencies.”
Investors had been watching for a higher-than-consensus inflation reading and the possibility that such a reading would lead the US Federal Reserve to signal a faster-than expected pace of interest rate hikes after the next Federal Open Market Committee (FOMC) meeting, which ends on Wednesday.
“Today isn’t going to change the message for next week. We’re going to see a hawkish Fed. We’re going to see a dot plot that moves higher,” Issa said.
With the US dollar index up almost 7 percent for the year-to-date, Issa said that “a lot has already priced in,” but with overseas central banks looking less hawkish than the Fed, there was no credible alternative for currency investors.
“It’s going to be hard to fade the dollar in the face of what’s projected to be elevated inflation at least through to early second quarter. That’s the challenge,” he said.
Against a basket of its rivals, the US dollar went into negative territory after the CPI news and fell further as the day wore on with some trading choppiness.
The index fell 0.23 percent to 96.05, down 0.07 percent for the week.
The US dollar was down 0.02 percent against Japan’s yen on Friday.
The British pound inched up on Friday after the greenback lost ground after the US inflation data. Sterling was last trading up 0.28 percent at US$1.3257.
The euro was up 0.17 percent at US$1.1312.
While Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets, said that the foreign exchange market had positioned for a higher inflation reading, he was less bullish about the dollar for the rest of the year.
Additional reporting by CNA, with staff writer
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