The U.S. dollar achieved a one-week high against a basket of major currencies on Friday, extending its gains from the previous session following the release of strong U.S. consumer price data. This data reinforced expectations that the Federal Reserve might need to maintain higher interest rates for an extended period.
The consumer price index (CPI) for September exhibited a 0.4% increase, keeping the annual rate steady at 3.7%, the same as August. Economists surveyed by Reuters had predicted a 0.3% monthly gain and a 3.6% year-on-year increase.
Earlier in the week, data indicated that U.S. producer prices surged beyond expectations in September, primarily due to rising costs in energy products and food.
Helen Given, an FX Trader at Monex USA, remarked, “Traders didn’t fully embrace the significant PPI figures for September until the CPI data confirmed it yesterday.”
She added, “I view Thursday’s substantial USD surge as a correction for the under-reaction following Wednesday’s PPI release.”
The dollar index, measuring the U.S. currency against six major peers, inched up by 0.11% to reach 106.63. On Thursday, the index experienced a substantial 0.8% gain, marking its most significant one-day increase since March 15. It is poised to conclude the week with a 0.5% gain.
The U.S. dollar also benefited from safe-haven demand triggered by the escalating conflict in the Middle East, where Israel urged civilians to vacate the northern Gaza Strip.
Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics, pointed out, “Our sense is that the greenback’s resurgence primarily reflects the mounting economic and geopolitical uncertainties amid the recent conflict between Hamas and Israel.”
Federal Reserve speakers’ commentary is expected to continue supporting the dollar. Federal Reserve Bank of Philadelphia President Patrick Harker conveyed his belief that the central bank is likely done with rate hikes, citing the diminishing price pressures while acknowledging the uncertainty surrounding the duration of elevated rates.
Data released on Friday revealed a deterioration in U.S. consumer sentiment for October. Households anticipated higher inflation in the upcoming year, but the strong labor market is expected to bolster consumer spending.
The dollar’s resurgence on Thursday caused the Japanese yen to approach the sensitive 150 level it briefly touched the previous week before undergoing a significant strengthening. This led some to speculate about potential currency market interventions.
The Japanese yen last gained 0.21% against the dollar, with traders vigilant for any signs of vulnerability.
Adam Cole, Chief Currency Strategist at RBC, noted, “The risk of intervention is clearly high and is limiting the dollar-yen, which would otherwise be higher.”
Sweden’s crown saw an uptick against both the dollar and the euro following higher-than-expected consumer price data, increasing the possibility of the Riksbank considering further rate hikes.
Investors also considered producer and consumer price data from China, which indicated slightly stronger deflationary pressures than anticipated. The offshore Chinese yuan remained steady at 7.3114 per dollar.
The Australian dollar, often viewed as a barometer of Chinese growth, was last down 0.23% at $0.6299.
