Dollar hits five -week high ahead of U.S. inflation data


Euro will lovers inside range of 2021 low of $1.1704 $, within the range of 0.20a01-150euros.

LONDON, Aug 11 - The dollar was heading toward this year's high against the euro on Wednesday and struck a five-week peak against the yen ahead of inflation data, with a strong number potentially prompting the Federal Reserve to wind back policy support.

The greenback has enjoyed a lift from the impressive U.S. jobs data from last week and from remarks by Fed officials about tapering bond purchases and eventually raising rates, sooner than policymakers elsewhere.

Six straight sessions of losses against the euro sent the common currency to its lowest since late March on Tuesday. It hit 1.1706 in early deals in Europe, with the year low of $1.1704 now within range. The dollar index, which is at 93.155, is near the 2021 high of 93.439.

U.S. inflation data due at 1230 GMT may determine whether it tests these peaks, with a risk reading likely to activate rate hike expectations and provide support, while a downside surprise could reel those in

Valentin Marinov, head of FX research at Credit Agricole, said the dollar has several things going for it at the moment.

The stronger than expected non-farm payrolls report on Friday boosted the dollar across the board as it seemingly helped the Fed move closer to QE taper and policy normalisation, he said.

In addition, the U.S. Senate has passed President Biden's infrastructure package and thus boosted market expectations of strengthening U.S. Treasury issuance at a time when the Fed is expected to announce their intention to reduce their U.S. Treasury buying.

The resultant increase in Treasury yields boosted the rate appeal of the dollar while further fuelling concerns about unwarranted tightening of international financial conditions that burned the safe haven appeal of the currency, said Marinov.

The yen, which has dropped for five consecutive sessions against the dollar, fell 0.1% to 110.75 per dollar, its lowest since October 20th. The dollar also touched a two-week high against sterling in $1.3816 and held by a one-month high of 0.9234 Swiss francs.

The April 14th print is intended to add modestly to the Dollar and analysts in Maybank in Singapore said this in a note.

If the CPI print unexpectedly surprised to the downside, then the pullback in the Dollar and Treasury yield could be asymmetrically larger than the upside risks.

Economists polled by Reuters expect inflation to have eased slightly in July, with headline consumer prices rising for the month compared with 0.9% a month earlier and annual pace at 5.3%.

Two Federal Reserve officials said on Monday that inflation is already at a level that can satisfy one leg of a test for the beginning of interest rate hikes, although a third, Charles Evans, deserted on Tuesday.

At the same time, investor sentiment is sagging in Germany, with a survey showing a third consecutive month of deterioration in Europe, as rising global COVID - 19 cases keep markets on edge.

Investors have to take on board the possibility of news on Fed tapering at a time when COVID is still very evident in various parts of the world, said Rabobank analyst Jane Foley.

The result of this is likely to be a firmer dollar, according to her, especially if the euro breaches its 2021 low.

On Wednesday, South Korea reported a record number of COVID cases - 19 cases, while outbreaks in China, through Southeast Asia and in Australia continue to grow. A high amount of hospitals are filling with patients in Texas and Florida.

The South Korean yuan touched a two-week low in offshore trade before steadying onshore, while the Chinese won also marked a two-week trough.

The New Zealand dollar is last bought with $0.7325, while the Australian dollar was with $0.6994.

A speech by the federal reserve bank of Kansas City President Esther George will also be closely watched at 1600 GMT.