Dollar rises as traders bet on faster rate hikes

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Dollar rises as traders bet on faster rate hikes

SYDNEY, Dec 10 Reuters -- The dollar was firm on Friday as traders wagered U.S. inflation figures could settle the course of interest rate rises next year, while the Chinese yuan regained its footing after being knocked back by official policy.

The euro, which was seen as vulnerable to a Federal Reserve hike if the European rate rises lag, dropped 0.4% on Thursday and was steady in Asia at $1.1297.

The dollar index, at 96.197, was moving towards its seventh week of rise ahead of the data, which is due at 1330 GMT. A faster Federal Reserve taper and a higher interest rate are expected to be interpreted as an annual price gain of 6.8% and an upside surprise are likely to be interpreted as a case for a quicker Federal Reserve taper and a faster rate of interest.

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

Tom Porcelli, RBC Capital Markets' chief U.S. economist, thinks the annual pace is going to pick up and keeps pushing near 7% early in the new year.

He said that combination means a hike in March is very possible. The market is pricing in about a 40% chance of that, but we think it's a bit higher. It's probably closer to a coin flip now. The Fed, the European Central Bank, the Bank of England and Bank of Japan all meet next week, and the combination of inflation data and the possibility of a central bank response has set market volatility gauges rising.

"I'd argue that traders are positioning for a higher CPI print, which reinforces a belief that the Fed will increase the pace of tapering its QE programme," said Chris Weston, head of research at Pepperstone.

While form suggests we get a beat, we obviously can't dismiss a poor number, and of course an inline print - I think if we get 6.4% or below then AUDUSD should fly. Volatility has been stoked by the ebb and flow of concern about the Omicron variant and policy in China.

A slight rise in the safe-haven yen on Thursday pointed to continued caution, although a broad relaxation of concern in earlier sessions has the Aussie dollar up more than 2% this week and within sight of its largest weekly rise since August.

The yen was last at 113.51 per dollar, just above its 50 day moving average. The Aussie bounced back hard from 70 cents to around $0.7149.

The central bank set its trading band midpoint weaker than expected, but on Thursday the yuan fell as the People's Bank of China PBOC raised FX reserve requirements for the second time since June and was further pressured by the fact that the central bank set its trading band midpoint lower than expected.

On Friday, sustained yuan buying from corporates who have an enormous dollar stockpile drove a bit of a recovery to 6.3650 per dollar, suggesting that the recovery might be steady rather than reversed over the past few years.

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 the moment is a return to the previous 6.3600 to 6.4000 range. As England tightened restrictions to try and curb the spread of the Omicron variant, sterling has been under pressure. It purchased $1.3220 last time.

The New Zealand dollar has been weighed down by aggressive hike prospects, with traders expecting that to drag on future growth. It hovered at $0.6791 in Asia.

The risks aversion has thrown a slap on the coin and it has struggled for traction above $50,000. It was last at $48,286.