The Fed is going to keep interest rates higher for longer, and the data shows U.S. producer prices have gone up more than expected last month, pointing to inflationary pressures and a chance that the Fed will keep interest rates higher for longer.
The dollar rose by 0.35 per cent against the Japanese yen to 137.05. The U.S. dollar index gained 0.12 per cent at 105.18 against a basket of currencies.
The euro was 0.2 per cent lower at $1.0509.
The pound fell by 0.31 per cent to $1.2229 in Asia trade on Monday, while the Aussie fell 0.34 per cent to $0.6773.
The kiwi fell 0.34 per cent to $0.6393.
The U.S. producer price index for final demand in November was up 0.3 per cent from the previous month and 7.4 per cent from a year earlier, a slight upside surprise from forecasts of a 0.2 per cent and 7.2 per cent increase, according to data released on Friday.
Carol Kong, a currency strategist at Commonwealth Bank of Australia CBA Traders, said there were concerns about inflation and the Fed's policy being kept at a restrictive level for even longer than previously expected, as well as the U.S. inflation data and a slew of major central bank meetings.
The Federal ReserveFederal Reserve is expected to raise interest rates by 50 basis points, but will be focused on the central bank's updated economic projections and Fed Chair Jerome Powell's press conference.
If he does talk more about the risks to the economy, I think that will probably be considered dovish by markets and markets love dovish comments and how the FOMC will pay more attention to downside risks to the economy, said CBA's Kong.
The Bank of England and the European Central Bank ECB will meet this week, and each is expected to deliver a 50 bp rate hike.
Kong of the upcoming ECB meeting said that ECB officials told us that they care more about the underlying inflation, which has remained elevated.
If they do hike by 50 bps, they may follow up with some pretty hawkish comments in Lagarde's post meeting conference. The U.S. inflation figures for November are due on Tuesday, with economists expecting core annual inflation to be 6.1 per cent.
The market reaction to U.S. inflation surprises has been asymmetric so far in 2022, with downside surprises having a larger effect than upside surprises, according to analysts at Barclays.
The Fed's guidance toward smaller hikes will likely be the bigger driver of the inflation print, according to the two, referring to influences on the U.S. dollar. The offshore yuan eased slightly to 6.9798 per dollar, which was further pressured by worries over a potential spike in COVID cases as China eases its stringent COVID 19 restrictions.