Dollar steadies as Fed's Waller cautions on inflation

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By Ankur Banerjee

SINGAPORE (Reuters) - The U.S. dollar steadied on Monday after Federal Reserve Governor Christopher Waller said the central bank was not softening its fight against inflation, which made some investors think that the steep sell-off last week was probably overdone.

A slightly cooler-than-anticipated inflation data on Thursday put the greenback in a tailspin, with the dollar index slipping 4% for the week, its worst week in more than two and half years.

The dollar index, which gauges the greenback against a basket of six counterparts that includes the yen, euro and sterling, rose 0.234% to 106.960 during Asian trade on Monday, coming off the nearly three month low of 106.27 it touched on Friday.

Global equities, meanwhile, soared as investors poured into risky assets on hopes that peaking inflation means less aggressive rate hikes from the Fed.

But Waller said on Sunday that the inflation print last week was "just one data point" that would have to be followed, and h other similar readings would be needed to show convincingly that inflation was slowing.

Waller did add, however, that the Fed could now start thinking about hiking at a slower pace.

"I think the market got a little bit ahead of itself," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), adding the market can expect more reality checks from Fed officials, which would help the dollar to recoup more ground.

U.S. inflation will likely remain high and keep the Fed on its monetary tightening path, Kong said.

U.S. consumer sentiment fell in November, pulled down by persistent worries about inflation and higher borrowing costs, a survey showed on Friday.

Sim Moh Siong, currency strategist at Bank of Singapore said the Fed's job was still not done and the central bank is unlikely to want the equity market to rally too much or bond yields to come off too much.

"If the financial markets get too buoyant, they will probably growl louder to make themselves heard in terms of their inflation message."

The U.S two-year yield, which reflects rate move expectations, edged up to 4.41%, after diving as low as 4.29% on Friday, while the U.S. 10-year yield was up 7 basis points at 3.899%.

Elsewhere, cryptocurrencies remained under pressure from ongoing turmoil after the fall of crypto exchange FTX. FTX's native token, FTT, was last down 7.6% at $1.31, taking its month-to-date losses to nearly 95%.

Bitcoin fell 2.2% slipping below $16,000.

Sterling was swaying at $1.1747, down 0.74% on the day, having risen 4% in the previous two sessions ahead of the Autumn Statement on Thursday when Britain's finance minister Jeremy Hunt is expected to set out tax rises and spending cuts.

The Japanese yen weakened 0.60% versus the greenback at 139.63 per dollar, while the euro was down 0.47% to $1.0303.

The risk-sensitive Australian and New Zealand dollars slipped, giving up some gains made after China moderated its zero COVID strategy.

On Sunday, Reuters reported that Chinese regulators have told financial institutions to extend more support to property developers to shore up the struggling real estate sector.

China's yuan rose to a near two-month high against the dollar on Monday, after the central bank lifted its official guidance fixing by the most since 2005 when Beijing abandoned the currency's decade-old peg against the greenback.

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Currency bid prices at 0147 GMT

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

Previous Change

Session

Euro/Dollar $1.0328 $1.0347 -0.18% -9.15% +1.0368 +1.0315

Dollar/Yen 139.1150 138.7350 +0.28% +20.96% +139.7300 +138.9200

Euro/Yen 143.68 143.69 -0.01% +10.25% +144.3640 +143.5900

Dollar/Swiss 0.9442 0.9413 +0.33% +3.54% +0.9448 +0.9425

Sterling/Dollar 1.1792 1.1835 -0.39% -12.83% +1.1852 +1.1767

Dollar/Canadian 1.3258 1.3251 +0.06% +4.87% +1.3308 +1.3240

Aussie/Dollar 0.6689 0.6707 -0.30% -8.01% +0.6720 +0.6668

NZ 0.6101 0.6121 -0.37% -10.91% +0.6127 +0.6070

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ