Dollar loiters off highs as traders wait on inflation data

© Reuters. U.S. Dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

By Tom Westbrook

SINGAPORE (Reuters) - The dollar lurked just below recent highs on Tuesday as traders waited for U.S. inflation data due later in the week, wary of a surprise that could heap more upward pressure on interest rates.

The data is due on Wednesday and the anticipation is likely to keep things calm until then.

The Australian and New Zealand dollars rose overnight and were steady in the pre-CPI calm in Asia. The Aussie held gains at $0.6974. The kiwi did likewise at $0.6281, leaving both just above their 50-day moving averages.

Sterling held at $1.2084 and the euro was stuck just above parity at $1.0194, with the continent's energy crisis meaning it may miss out on a boost if the dollar weakened. The yen held at 134.94 per dollar.

Previous releases have led to mixed reactions in the currency market and it isn't clear whether a high number would lift rate expectations and the dollar together, or send them in opposite directions by further stoking fears of stagflation.

"The market understandably is waiting for the numbers to then reprice, rather than moving in anticipation of them," said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY) in Sydney.

"We've had six CPI numbers this year, four of those six have been upside surprises...but the impact on the dollar is a little bit ambiguous."

Economists polled by Reuters see year-on-year headline inflation at 8.7% -- incredibly high, but below last month's 9.1% figure.

Last week's strong labour data stoked expectations of aggressive near-term hikes and the Treasury market has moved to lift short-term yields, but has hardly shifted long rates.

The two-year Treasury yield is now above the 10-year yield, a reliable recession indicator, and the gap has grown to its largest in two decades. [US/]

Yet on Monday, a New York Fed survey showed consumers' inflation expectations fell sharply in July, perhaps offering a sliver of hope that the CPI release brings relief.

"Expectations that the Fed may announce another 75 basis point rate hike on September 21 have risen on the back of (Friday's) strong U.S. July payrolls report," said Jane Foley, senior currency strategist at Rabobank.

"Later this week, the July U.S. CPI inflation release is expected to show some moderation in inflation pressures," she said. "This may now be sufficient for the Fed to relax."

The dollar's haven status, though, makes the greenback's reaction a little harder to predict, especially as growth concerns and geopolitical worries swirl.

Consumer confidence slid in Australia for a ninth straight month.

China extended military drills near Taiwan, and the self-ruled island's foreign minister said China was using the drills launched in protest against U.S. House Speaker Nancy Pelosi's visit as an excuse to prepare for an invasion.

China's yuan inched lower to 6.7513 per dollar.

"U.S.-China relations are worsening," Singapore's Prime Minister Lee Hsien Loong said in his National Day address, which also included a warning for those hoping for a swift victory over inflation.

"The world is not likely to return any time soon to the low inflation levels and interest rates that we have enjoyed in recent decades," he said.

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Currency bid prices at 0552 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0198 $1.0194 +0.05% -10.29% +1.0201 +1.0189

Dollar/Yen

134.9800 135.0450 -0.12% +17.27% +135.0400 +134.7550

Euro/Yen

137.68 137.65 +0.02% +5.65% +137.7300 +137.2700

Dollar/Swiss

0.9550 0.9555 -0.05% +4.70% +0.9556 +0.9551

Sterling/Dollar

1.2085 1.2080 +0.03% -10.65% +1.2089 +1.2071

Dollar/Canadian

1.2856 1.2858 -0.02% +1.67% +1.2874 +1.2851

Aussie/Dollar

0.6973 0.6984 -0.16% -4.09% +0.6993 +0.6969

NZ

Dollar/Dollar 0.6277 0.6286 -0.07% -8.23% +0.6293 +0.6276

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ