Dollar rises ahead of expected inflation data

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Dollar rises ahead of expected inflation data

LONDON, Dec 10 Reuters -- The dollar went up Friday as traders prepared for U.S. inflation figures later in the day that could cement the course of interest rate rises next year, while the Chinese yuan rebounded after a big fall in the previous session.

The euro, seen as vulnerable to a Federal Reserve hike especially if the European rate rises lags, dropped 0.4% on Thursday and fell 0.2% in mid-session European trading to $1.1269, not far from its 2021 low of $1.1186.

The dollar index went up 0.2% to 96.412 and was headed for its seventh consecutive weekly rise ahead of the data due at 1330 GMT. If U.S. inflation hits Reuters poll expectations of 6.8%, it would be the highest since 1982, and any upside surprise will be interpreted as a case for a faster Fed taper and rate rises.

U.S. consumer confidence data is due on Friday and 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 for today's data print the bar is extremely high for today's data print to alter their policymakers' course, especially since his Chair Jerome Powell's testimony. The Fed, the European Central Bank, the Bank of England and Bank of Japan will meet separately next week and the combination of higher inflation, possible central bank responses and the spread of the Omicron variant has resulted in a falling of China's yuan in onshore and offshore markets, as the central bank set its trading band midpoint weaker than expected.

The PBOC took a step to curb CNY appreciation through a weaker fixing this morning. The fading narrative of China welcoming a stronger CNY is going to contribute to a strong dollar environment, according to ING analysts.

A rebound on Friday was driven by sustained buying from corporates who have an enormous dollar stockpile over the past few years.

It was last traded at 6.3735 yuan per dollar in offshore markets. The Chinese currency had risen to 6.33 per dollar this week, its highest since May 2018, before tumbling on Thursday.

The dollar dropped by 0.3% to 113.76 yen per dollar.

The pound fell 0.2% to $1.3197 after disappointing GDP data for October. The British currency fell to the 2021 low of $1.3161 this week after a strong dollar rattled the G 10 currencies and the UK introduced new restrictions to fight the Omicron COVID 19 variant.