Nervous calm as dollar prepares for inflation test

© Reuters. FILE PHOTO: U.S. One dollar banknotes are seen in front of displayed stock graph in this illustration taken, February 8, 2021. REUTERS/Dado Ruvic/Illustration/

By Tom Westbrook and Alun John

SINGAPORE/HONG KONG (Reuters) - Major currencies held steady on Wednesday, with traders cautious about placing large bets ahead of U.S. inflation data, which markets will scrutinise for guidance on how steeply the U.S. Federal Reserve will raise interest rates in coming months.

The figures are due at 1230 GMT. Economists expect year-on-year headline inflation to be running at a scorching 8.7%, a small retreat from June's whopping 9.1% figure. Core inflation is expected at 0.5% month-on-month.

The greenback was broadly steady, having paused a bit from a retreat that began in the middle of July.

It bought 135 Japanese yen and sat at $1.0215 per euro and $1.2089 versus sterling, all little changed on the day and largely unchanged since the start of this week.

"All eyes are on U.S. CPI," said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).

"Currencies have been quiet this week, and barring a major news event we don't expect the dollar to move out its range before the data."

Traders expect reaction to turn on the core inflation figure.

"The market will initially get more excited by a downside core CPI surprise than an upside surprise," said Deutsche Bank (ETR:DBKGn) strategist Alan Ruskin. A downward surprise would feed into hopes that falling commodity prices mean inflation can quickly recede.

"It will also play to the market's recent proclivity to buy risk dips, and will be a broad-based negative for the U.S. dollar," he said.

"An upside core CPI surprise will fit with the pattern of the last three releases...the purist long dollar trade in this instance is versus the yen," he said, adding dollar/yen could rise into a range of 135 to 139 per dollar.

A quick reading on policymakers' reaction may come from Fed officials Charles Evans and Neel Kashkari, who are due to make speeches at 1500 GMT and 1800 GMT, though they will have another set of price data in August before September's policy meeting.

The Australian and New Zealand dollars were also calm, with the Aussie last at $0.6967, just above its 50-day moving average. The kiwi traded at $0.6295.

Chinese inflation data on Wednesday showed a small increase in annual consumer inflation, to 2.7%, and a slowdown in factory-gate price growth. HSBC analysts said the still muted CPI figure indicated "ongoing pressure in the consumption recovery".

In offshore trade, the yuan lost a little ground to 6.762 per dollar. [CNY/]

Bitcoin, rattled by a drumbeat of cryptocurrency fund wipeouts and thefts over recent months, was at $23,000 on Wednesday.

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Currency bid prices at 0758 GMT

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

Previous Change

Session

Euro/Dollar

$1.0214 $1.0213 +0.02% -10.14% +1.0219 +1.0203

Dollar/Yen

134.9250 135.1250 -0.12% +17.34% +135.2950 +134.9100

Euro/Yen

137.83 138.00 -0.12% +5.76% +138.0900 +137.7700

Dollar/Swiss

0.9511 0.9537 -0.27% +4.28% +0.9544 +0.9510

Sterling/Dollar

1.2087 1.2075 +0.12% -10.61% +1.2091 +1.2066

Dollar/Canadian

1.2875 1.2883 -0.06% +1.83% +1.2895 +1.2875

Aussie/Dollar

0.6966 0.6962 +0.08% -4.15% +0.6972 +0.6947

NZ

Dollar/Dollar 0.6295 0.6288 +0.08% -8.06% +0.6296 +0.6277

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ