CPI Uptick, Fed Hints Boost Dollar Again

The U.S. dollar rallied against major currencies during the week ended November 15 amidst an expected uptick in consumer price inflation in the U.S. as well as hints from Jerome Powell that the Fed was in no hurry to cut rates.

The Dollar Index, which measures the U.S. Dollar’s strength against a basket of 6 currencies jumped 1.61 percent during the week ended November 15, recording the seventh straight week of gains. The Index had added 0.69 percent during the week ended November 8, around 0.74 percent during the week ended October 25 and close to 0.58 percent during the week ended October 18.

Data released by the U.S. Bureau of Labor Statistics on Wednesday showed annual headline inflation rising as expected to 2.6 percent in October. The level increased from 2.4 percent in September which was the lowest reading since February 2021. An uptick was recorded in headline CPI after a gap of seven months. The core component however remained steady at 3.3 percent. The month-on-month inflation remained steady at 0.2 percent and core portion thereof was steady at 0.3 percent matching expectations.

Producer price inflation update for October released on Thursday showed an uptick to 0.2 percent from 0.1 percent, matching market expectations.

Also, data released on Thursday showed the number of people claiming unemployment benefits in the U.S. unexpectedly decreasing to 217 thousand in the week ended November 9 whereas markets had expected it to edge up to 223 thousand from 221 thousand in the previous week.

Federal Reserve Chair Jerome Powell on Thursday remarked that the economy was not sending any signals that needed the Fed to be in a hurry to lower rates. Acknowledging the strength of the economy, he said it gave the Fed the ability to approach decisions carefully. He also reiterated that inflation has eased substantially from its peak and was on a sustainable path to the goal of 2 percent. He also placed on record that the labor market has cooled to the point where it was no longer a source of significant inflationary pressures.

Data released by the U.S. Census Bureau on Friday showed month-on-month Retail Sales in the U.S. rising 0.4 percent in October versus market expectation of a rise of 0.3 percent. As per upwardly revised data, retail sales had grown 0.8 percent in September.

The Fed Chair’s comments sobered rate cut expectations, and the CME FedWatch tool showed the likelihood of a 25-basis point Fed rate cut in December declining to 61.9 percent on Friday from 65.3 percent on Monday. Expectations of a status quo meanwhile increased to 38.1 percent from 34.7 percent on Monday.

The DXY touched a weekly low of 104.93 on Monday and climbed to a one-year high of 107.06 on Thursday, before slipping and eventually closing at 106.69 on Friday. The Index was at 105.00 a week before.

The euro tumbled against the U.S. Dollar during the week ended November 15 amidst the dollar’s Fed-led strength and lingering worries of a protectionist U.S. trade policy. The EUR/USD pair declined to 1.0541 on November 15, from 1.0718 a week earlier, recording a decrease of 1.65 percent. The pair ranged between the high of 1.0727 recorded on Monday and the one-year low of 1.0496 touched on Thursday. Sentiment was also swayed by minutes of the latest monetary policy meeting of the European Central Bank released on Thursday. The discussions inter alia revealed the members acknowledging that the disinflationary process was well on track.

The U.S. Dollar surged against the British pound also during the week ended November 15 amidst a higher-than-expected increase in the unemployment rate in the U.K. that renewed hopes of rate cuts by the Bank of England. The GBP/USD pair which had closed at 1.2921 on November 8, tumbled 2.35 percent to 1.2617 by November 15. The pair ranged between Monday’s high of 1.2926 and Friday’s low of 1.2594. Data released on Friday showed U.K.’s third quarter GDP expanding 0.1 percent on quarter below 0.5 percent in the second quarter and forecasts of 0.2 percent. The smallest growth rate in three quarters also boosted rate cut hopes, weakening the sterling.

The Australian Dollar too plunged 1.81 percent against the U.S. Dollar during the week ended November 15, amidst toned down Fed rate cut expectations and weak Chinese economic data. The mixed employment data that cast uncertainty on the Reserve Bank of Australia’s potential rate cut trajectory also shaped the currency’s movements. The AUD/USD pair which had closed at 0.6580 on November 8 climbed to a high of 0.6598 on Monday before dropping to 0.6439 on Thursday. The pair finally closed at 0.6461 on Friday.

The past week also saw the Japanese yen incur losses against the U.S. Dollar. The USD/JPY pair which was at 152.63 on November 8 climbed to 154.34 in a week’s time. The pair had touched a low of 152.62 on Monday and a multi-month high of 156.74 on Friday. The yen’s weakness came amidst a hawkish Fed and a sharp decline in GDP that could limit the headroom available to the Bank of Japan to tighten rates further.

The Canadian dollar, the Swedish krona, and the Swiss franc that constitute the Dollar Index alongside the euro, British pound, and the Japanese yen also recorded losses of more than a percent against the greenback. The dollar gained 1.45 percent against the franc, 1.36 percent against the krona and 1.29 percent against the Canadian Dollar during the week ended November 15.

At the onset of the new week, the six-currency Dollar Index is firm above the flatline at 106.72. The EUR/USD pair has increased to 1.0549 amidst a pause in the Dollar’s surge. The sterling has also firmed up to $1.2627. Ahead of the release of the minutes of the Reserve Bank of Australia, the AUD/USD pair has slipped to 0.6452. Amidst Bank of Japan Governor Kazuo Ueda desisting from giving firm timing of the next rate hike, the yen has weakened further, lifting the USD/JPY pair to 155.19.

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