Dollar gains as investors remain risk averse ahead of inflation data

Dollar gains as investors remain risk averse ahead of inflation data

The dollar was broadly higher on Friday as investors remained risk averse ahead of the U.S. inflation data next week, with concerns of an economic slowdown and the pace of the Federal Reserve'sFederal Reserve's rate increases that hurt sentiment.

The dollar index, which measures the safe-haven U.S. currency against six major peers, rose 0.155 per cent to 103.34, having dropped 0.24 per cent in the previous session. The index is poised to make a weekly gain, its second straight week of positive growth and a run it has not had since October.

The euro was down 0.15 per cent to $1.072 and set for a second straight week of losses, while sterling was trading at $1.2093, down 0.24 per cent on the day ahead of GDP data for the fourth quarter.

OCBC currency strategist Christopher Wong said that the foreign exchange market is likely to trade sideways on Friday in the absence of key data and Federal Reserve speakers, putting the focus on inflation data due next week.

The Fed is doing policy calibration but for the near term there is caution given recent Fed speakers and how the disinflation trend may be bumpy. The yen weakened by 0.12 per cent to 131.74 per dollar. Japan's government is planning to present the new Bank of Japan governor nominee and two deputy governor nominees to parliament on February 14, Reuters reported on Thursday.

In January, wholesale prices rose by 9.5 per cent from a year earlier, adding to the growing signs of inflationary strains that could keep the central bank under pressure to phase out its massive stimulus programme, according to data released on Friday.

The Australian dollar fell by 0.20 per cent to $0.692, while the kiwi was down 0.24 per cent against the U.S. dollar at $0.631.

A blockbuster jobs report rattled investors as they feared policymakers might stay hawkish for longer, and the Fed raised interest rates by 25 basis points last week and said it was seeing signs of disinflation.

Fed Chair Powell stated this week that he believed that disinflation was under way.

In a statement by Richmond Fed President Thomas Barkin, the Fed said that tight monetary policy was unaquivocally slowing the U.S. economy, allowing the Fed to move more deliberately with any further interest rate increases.

The yield on 10 year Treasury notes was down by 1.6 basis points to 3.667 per cent, not far from a month high of 3.692 per cent it touched on Wednesday.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two and 10 year Treasury notes, seen as an indicator of economic expectations, was at - 82.5 basis points, having inverted as far as 88 basis points, the most in nearly two months.

There are concerns about an imminent recession because of the deep inversion in this part of the yield curve.

The U.S. CPI data will be released next week as investors gauge whether disinflation is taking place.

DBS senior currency strategist Philip Wee said that the market is more data-dependent after last Friday's spectacular U.S. jobs report.

The Fed has signalled that more surprises in the inflation and jobs report before its next meeting in March could lead the central bank to lift the rate forecast above the 5.1 per cent predicted in December, Wee said.

With the Fed possibly joining other central banks in delivering more hikes, this has evened the playing field for the greenback this month, Wee said.