Dollar on course for second straight week as inflation rises

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Dollar on course for second straight week of gains.

On Friday the Dollar held firm, near its highest level of inflation in four months against a basket of currencies as investors looked for more hints from the Federal Reserve on its plans to reduce monetary stimulus.

The U.S. currency was underpinned by data released on Thursday showing U.S. producer prices posted their largest annual increase in more than a decade in the 12 months of July.

Although the wholesale price data published a day earlier indicated inflation may be peaking, the consumer price data underscored the strength of inflation pressure, helping the case for removing some of the Fed's stimulus measures.

The dollar index stood steady at 92.966, retaining a weekly gain of 0.2% not far from Wednesday's four-month high of 93.195 and with a weekly gain of 9,217.

The euro climbed slightly to $1.1732, on course for a second straight week of losses and still not far from the four-month low of $1.1706 hit Wednesday.

The dollar changed hands at 110.42 yen, a tad below a one-month high of 110.80 set on Wednesday.

Sterling had hit a trading deficit of $1.3815 after hitting a two-week low of $1.3794 in the previous session, drawing little help from slightly stronger than expected GDP estimate for June.

Several Fed officials in this week came out as support of tapering bond buying in the coming months, setting themselves apart from other, more extreme central banks such as the European Central Bank and the Bank of Japan.

While many market participants believe Fed Chair Jerome Powell is more reliable than other board members, especially more regional Fed chiefs, a tapering announcement by the end of the year is seen as near certainty.

Thursday's weekly data showed the number of Americans filing unemployment benefits again dropped last week as the economic recovery from COVID-19 pandemic continued despite concerns about the Delta variant of the virus.

The focus is shifting to inflation from employment. While we still need to monitor the impact of Delta variant, if we have strong payroll growth for the next few months, then there should be a tapering announcement from the Fed, said Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management.

Some investors believe the Fed can signal timings for tapering as early as at a meeting of central bankers in Jackson Hole, Wyoming, on Aug. 26 to 28, although many others think the Fed will take a slower approach than expected

I think they still want to talk about it some more, they still want to think about talking about it and talk about thinking about it to have us absorbed that idea so that it becomes not news at all when they start doing this, said Christopher Smart, chief global strategist and head of the Barings Investment Institute in Boston.

When they start doing it, it will be very small amounts. They want to make sure that they are not going to disrupt the markets, particularly in the mortgage market where they've been buying a lot of assets, he said.

Easing oil prices put some pressure on commodity-linked currencies as the International Energy Agency said the spread of Delta variant of coronavirus would slow the recovery of global oil demand.

The Canadian dollar stood at $0.7342, near an eight-month low of $0.72895 touched last month while the Australian dollar eased to $1.2520 per U.S. currency unit.

Elsewhere, Bitcoin ticked up 1.1% to $44,913, off the three-month peak of Wednesday $56,787, leaving most of its gains so far this week while Ethereum edged higher to $3,095, one rate higher by 0.6%.