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Dollar lower, but remains elevated after U.S. CPI release – The U.S. dollar edged lower in early European trade Friday, but remained near the previous session’s elevated levels after the release of sticky U.S. inflation data awakened the prospects of another Federal Reserve interest rate hike this year.

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 106.222, just off Thursday’s high of 106.60, when the index registered its biggest one-day percentage jump since March. 

U.S. CPI lifts chances of December Fed hike

Headline U.S. consumer prices grew at a faster-than-anticipated rate in September, data showed Thursday, potentially complicating the Federal Reserve’s upcoming policy decisions aimed at corraling elevated inflation.

The consumer price index registered a rise of 3.7% on an annual basis, the same pace as in August, and rose by a larger-than-forecast 0.4% month-on-month. Economists had expected readings of 3.6% and 0.3%.

This data stoked expectations that the Federal Reserve is perhaps not yet done with monetary tightening, boosting the dollar, even with many officials pointing to the recent run-up in Treasury yields as lessening the need to further tighten financial conditions. 

Markets are now pricing in about a 40% probability of a rate hike in December, versus a 28% chance before the report.

The University of Michigan’s consumer sentiment reading for October is due out later in the session, and traders will also be studying earnings from a number of major banks for clues about the health of the economy.

Euro edges higher after French/Spanish CPI data

EUR/USD rose 0.1% to 1.0537, after a sharp drop during the previous session, with more inflation data emerging in the eurozone.

French CPI climbed 4.9% on the year in September, while Spanish consumer prices rose 3.5%, both still above the European Central Bank’s medium-term target.

ECB policymaker Francois Villeroy de Galhau repeated his view on Thursday that the central bank should keep its key interest rate at its current level – the highest in its 25-year history – for as long as necessary to ensure inflation returns back to its 2% goal. 

More weak Chinese trade data

USD/CNY rose 0.1% to 7.3078 after China’s exports for September shrank by 6.2% from a year earlier, while imports also declined by 6.2%, showing that the second-largest economy in the world remained in a difficult position.

That said, these figures both contracted at a slower pace than the previous month, adding to recent evidence that the world’s second-biggest economy is stabilising.

Elsewhere, GBP/USD rose 0.2% to 1.2193, AUD/USD rose 0.1% to 0.6319 and NZD/USD fell 0.2% to 0.5916.



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