U.S. inflation rises, dollar falls below expectations

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U.S. inflation rises, dollar falls below expectations

Headline CPI came slightly above expectations.

NEW YORK Oct 13 Reuters - On Wednesday, the dollar fell from a one year high as longer-dated Treasury yields bounced back after U.S. inflation data showed prices rose solidly in September, advancing expectations for Fed tightening.

The consumer price index rose 0.4% last month, versus a 0.3% rise anticipated by economists polled by Reuters. The CPI increased 5.4% in the 12 months to September, up from a 5.3% year on year increase in August.

Excluding volatile food and energy components, the so-called core CPI climbed 0.2% last month, up from 0.1% in August.

The gap between two and 10 year note viewed as an indicator of economic expectations, has widened a record three month high upon Friday after closing to its narrowest in two weeks.

The market is now seeing a major pivot here as far as inflation is showing more signs of being persistent than transitory, and that's likely to force the Fed to deliver a rate hike well in advance of what people were anticipating, said Edward Moya, senior market analyst at Oanda.

The market had been facing a rate hike for December of next year, but now it is eyeing September, he said.

The greenback first moved higher after the CPI data, touching a nearly three-year high against the Japanese yen before edging lower along with longer-dated bond yields.

The dollar index, which measures the greenback against six rivals, was last down 0.347% at 94.195 from Tuesday, when it touched 94.563, its highest since late September 2020.

The dollar has had a significant move higher and it's been ripe for a pullback here and I think this is going to likely trigger that, Moya said.

The dollar fell 0.15% against the yen to 113.460 yen.

A surge in the energy prices has added to inflation concerns and stoked bets that the Fed may need to act faster to normalize policy than previously projected.

The euro was up 0.35% at $1.1570, trading away from the one month low of $1.1522 that had hit in the previous session.

The Fed will release the minutes from its September meeting later on Wednesday and they will be parsed with signs of a November announcement that the central bank will announce a tapering of its bond-buying stimulus in October.

Today's FOMC minutes release could confirm that a November taper announcement may be hard to resist for the Fed, but also that there were discussions of the potential impact from further tightening of U.S. and global financial conditions, said Valentin Marinov, head of G 10 FX research at Credit Agricole.

We further believe that the Fed should be better off for with a more gradual start to the quantitative easing of September and the relatively mixed delay rather than the resolution of the U.S. debt ceiling issue in order to extend them properly? Three Fed policymakers, including Vice-Chair Richard Clarida, said on Tuesday that the U.S. economy has healed enough to begin scaling back the central bank's asset-purchase program.

But most Fed policymakers continue to say inflation pressures will be transitory.

Governors Michelle Bowman and Lael Brainard are among the Fed officials due Wednesday for the first time.

The commodity-linked Aussie dollar rose 0.31% to $0.7373, close to its one-month high of $0.7384 hit on Tuesday.

Bitcoin traded 0.33% higher at $56,294 on 2 days ago. 93, after reaching a five-month high of $57,855, the highest in the world: $57,855.