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Dollar retreats from lows as US inflation test looms

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News Tech: The dollar stabilized above near two-month lows against its major currencies on Wednesday, ahead of expected data suggesting another U.S. inflation hike could seal the interest rate case. speed up. On Tuesday, Federal Reserve Chairman Jerome Powell gave no clear indication that the Fed is rushing to accelerate its plan to tighten monetary policy, putting downward pressure on the greenback, which enjoys benefit from expectations of US interest rate hikes in recent weeks. And the currency started to climb as the London session got underway and the December release of the US Consumer Price Index (CPI) faltered.

“At the same time, this will allow for a consolidation of the sub-dollar floor in the near term – further reinforcing expectations for three Fed hikes and leaving the door open for speculation for four in 2022,” Pesole said. . “We think that’s a reason for the markets to continue buying the bearish dollar for the time being”. In testimony at his waiver hearing on Tuesday, Fed Director Powell said the US economy is ready for higher interest rates and a reduction in its assets – known as quantitative tightening ( QT) – to combat inflation.

The dollar index last traded at 95.611, unchanged on the day. It fell to 95,533 during the Asian session, the lowest level since Nov. 1. 18. The US CPI headline, released at 13:30 GMT, is expected to hit 7% year-on-year, which would be the highest annual figure since 1982. ING currency strategist Francesco Pesole said knowing inflation above 7% is expected to be the market, the immediate reaction in the forex market should be restrained.

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Still, he said, policymakers are still debating methods of shrinking the Fed’s balance sheet, and it sometimes takes them two, three, or four meetings to make such a decision. Money markets are currently pricing in about an 85% chance of a rate hike in March and a total of at least three quarter-point hikes by the end of the year. “If inflation matches expectations at 7.0% or weaker than expected, yesterday’s dollar sell-off will gain momentum,” said Lee Hardman, currency strategist at MUFG in London. ,” said Lee Hardman, currency strategist at MUFG in London.

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