(CTN News) – On Friday, the US Dollar (USD) reached a one-week high against a basket of currencies, extending gains from the previous session when hot U.S. consumer prices data reinforced expectations that the Federal Reserve would need to raise interest rates for some time to come.
In September, the consumer price index (CPI) rose by 0.4%, keeping the annual rate at 3.7%, the same as in August. Economists polled by Reuters had forecast a 0.3% month-over-month gain and a 3.6% year-over-year increase.
It was reported on Wednesday that U.S. producer prices increased more than expected in September due to higher energy and food costs.
According to Helen Given, FX Trader at Monex USA, traders did not believe in the hot PPI for September until the CPI yesterday confirmed it.
Given believes that yesterday’s big USD move was a correction to the underreaction to the PPI report on Wednesday.
It is worth noting that the US Dollar index, which measures the U.S. currency against six of its major peers, increased by 0.11% to 106.63 on Thursday. It is expected that the index will end the week up 0.5%, following a jump of 0.8% on Thursday, its biggest one-day gain since March 15.
As Israel urged civilians to leave the northern Gaza Strip, safe-haven buying was also beneficial to the dollar.
In a note, Jonas Goltermann, deputy chief markets economist at Capital Economics, noted that the greenback’s renewed strength reflects both economic and geopolitical uncertainty.
It is likely that Fed speakers will continue to support the dollar with their comments.
President Patrick Harker of the Federal Reserve Bank of Philadelphia said Friday that the central bank is likely done raising rates, despite ongoing fading in price pressures.
U.S. consumer sentiment deteriorated in October, with households expecting higher inflation over the next year, but labor market strength is likely to support consumer spending in the months ahead.
Following Thursday’s boost to the US Dollar, the yen headed back toward 150, a level it briefly touched last week before strengthening sharply, which led some to speculate that monetary authorities were intervening in the forex market.
As of last night, the Japanese yen was up 0.21% to 149.5 per US Dollar, with traders on the lookout for any signs of weakness.
“The risk of intervention is clearly high, which constrains the US Dollar-yen rate, which would otherwise be higher,” said Adam Cole, chief currency strategist at RBC.
In response to higher than expected consumer price data, Sweden’s crown edged up against both the US Dollar and euro, increasing the likelihood that the Riksbank might raise rates in the future.
In addition, investors digested data from China on Friday that showed deflationary pressures were slightly stronger than anticipated.
Against the US Dollar, the offshore Chinese yuan was unchanged at 7.3114.
It was reported on Friday that the Canadian dollar edged higher against its U.S. counterpart as oil prices, one of Canada’s major exports, moved sharply higher and investors raised their expectations of another Bank of Canada rate hike.