Dollar rises ahead of expected inflation data

Dollar rises ahead of expected inflation data

LONDON, Dec 10 Reuters - The dollar held its ground on Friday as traders prepared for U.S. inflation figures later that could cement the course of interest rate rises next year, while the Chinese yuan gained ground after a big tumble in the previous session.

The euro, seen as susceptible to a Federal Reserve hike, fell 0.4% on Thursday and was steady at $1.129 in early European trading, still not far from its 2021 low of $1.1186, still not far from its 2021 low of $1.1186.

The dollar index went higher to 96.255 and was heading for its seventh consecutive weekly rise ahead of the data, which is due at 1330 GMT. The annual price gains of 6.8% are expected and any upside surprise is expected to be interpreted as a case for a faster Fed taper and rate rises sooner.

Consumer confidence data is due on Friday, and it could cause more price pressures ahead, if it holds up.

Jim Reid, a strategist at Deutsche Bank, said hawkish comments recently pointed towards tighter policy and added that the bar is extremely high for today's data print to alter policymakers' course, especially since Covid outlook has not deteriorated much since his Chair Jerome Powell's testimony. The Fed, the European Central Bank, the Bank of England and Bank of Japan all meet next week and the combination of higher inflation, possible central bank responses and the spread of the Omicron variant has set market volatility gauges rising, and that's why traders are positioning for higher CPI prints, said Chris Weston, head of research at Pepperstone.

China's yuan fell on Thursday after the People's Bank of China raised FX reserve requirements for the second time since June and was further pressured when the central bank set its trading band midpoint weaker than expected.

On Friday, sustained yuan buying from corporates who've amassed an enormous dollar stockpile caused a bit of a recovery to 6.3650 per dollar, suggesting that it might be steady rather than reversed over the past few years. The offshore currency was trading at 6.3717 after rising to 6.33 before Thursday's tumble, its highest since May 2018.

Analysts at the OCBC Bank in Singapore said that this move by the PBOC should negate any immediate expectations of further downside drift in the dollar yuan. The base case for now is a return to the previous 6.3600 to 6.4000 range. The yen was down a bit, at 113.58 per dollar. The pound dropped 0.1% to $1.3214, falling towards the 2021 low of $1.3161 this week, as a strong dollar rattled most G 10 currencies and the UK introduced new restrictions to fight the Omicron COVID 19 variant.