News Tech: The dollar weakened Wednesday after data pointing to an expected rise in U.S. consumer prices in December failed to provide new impetus to the Federal Reserve’s normalization efforts. It fell to a two-month low against the basket. The US Dollar Currency Index, which tracks the US dollar against six major currencies, fell 0.7% to 94.944 after falling to 94.903, its lowest level since November 11. US consumer prices rose sharply in December, marking the biggest annual rise in inflation in almost 40 years.
The consumer price index rose 0.5% last month after it rose 0.8% in November, the Labor Department said Wednesday.
“This is just a case where markets are far ahead of the Fed normalization right now. “We need to see this inflationary impact from Omicron really kick in in order to raise rates four times this year and start quantitative tightening”. “We don’t think today’s CPI release will prevent the Fed from starting March, but continued reports of low inflation pressures may cause markets to lower expectations for the full 2022 normalization cycle high, and arguably the result is continued weakness in the dollar,” Harvey said.
In the 12 months to December, the CPI rose 7.0%, the biggest year-on-year increase since June 1982. “The US economy looks poised for his March rate hike,” said Joe Manimbo, senior market analyst at Western Union Business Solutions. “But the problem with the dollar is that the market already has very hawkish expectations of Fed policy this year. We just strengthened what was already built in,” Manimbo said. Federal Reserve Chairman Jerome Powell gave no clear sign on Tuesday that the Fed is in a hurry to accelerate its plan to tighten monetary policy hiking.
Traders have priced in about an 80% chance of a rate hike in March, according to the CME’s FedWatch tool. The Australian dollar AUD=D3, often seen as a liquidity indicator of risk appetite, rose 1.04% against the US dollar to a one-week high. A weaker US dollar and higher oil prices pushed the Canadian dollar CAD= to its highest level in almost two months. Pound Sterling=D3 gained 0.56%.