Authors: Alun John and Kevin Buckland
LONDON/TOKYO (Reuters) – The dollar gained against European peers on Wednesday on a highly anticipated U.S. inflation reading, also boosted by a Reuters report. China was considering allowing a weaker currency next year, which sent the yuan and other Asian currencies tumbling.
The euro was last down 0.18% at $1.0508, a day before the European Central Bank meeting, and the pound was down 0.16% at $1.2752 ahead of US CPI data due at 13:30 GMT .
Economists expect both primary and core consumer prices to rise 0.3% in November, compared with previous increases of 0.2% and 0.3%, respectively.
Traders are currently assigning an 85% chance of a quarter-point rate cut by the Fed on December 18, but a higher-than-expected print is likely to disrupt those expectations, and concerns about it supported the dollar on Wednesday.
“The market is thinking, ‘what if the CPI report turns out to be strong?’ and then some of the Fed’s easing expectations could be priced in, which would be supportive for the dollar,” said Jane Foley, head of currency strategy at Rabobank in London.
She said the dollar was also being weighed by a Reuters report showing China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they prepare for higher trade tariffs during Donald Trump’s second U.S. presidency.
The greatest influences in this history were, of course, in Asia. The dollar strengthened against the yuan and was last up 0.24% against the offshore unit at 7.2780 and 0.23% higher against the onshore currency at 7.2491.
The report said the move under consideration reflects China’s recognition of the need for more economic stimulus to counter Trump’s threat of larger tariffs.
China is expected to hold its annual Central Economic Work Conference this week after Monday’s Politburo meeting pledged a shift to “appropriately loose” monetary policy to boost economic growth.
“If currency depreciation were used as a tactic to counter a tariff shock, the likely escalation of the trade war could reinforce the uniqueness of the U.S. dollar and weigh on regional currencies,” said Ken Cheung, currency strategist at the firm Mizuho (NYSE:).
China-exposed Antipodean currencies fell, with the latest down 0.3% to $0.6358 and 0.3% to $0.578, after both currencies hit year-low levels following the report’s release. The number of Korean victories under fire also decreased.
The Japanese yen was also in the spotlight, strengthening after data showed wholesale inflation in Japan had accelerated, supporting a BoJ interest rate hike next week.
The dollar was last down 0.3% at 151.49.
“The data indicates an increase,” said Bart Wakabayashi, co-manager of the w Stanowa Street (NYSE:) in Tokyo. “Put it this way: If they raise, it’s a very defensible position.”
At the same time, “we saw overall very good economic data in the U.S.,” Wakabayashi said.
“All the reasons we bought the dollar in the first place are still there,” he said. “If you ask me whether I think we will see 145 or 155 (yen per dollar), at this point I would say 155.”
In other central bank news, the Bank of Canada meets later Wednesday and the Swiss National Bank meets on Thursday just before the ECB meeting.
It is believed that the BoC is likely to decline by half a point, which will assist push the dollar to its lowest level in 4.5 years. One US dollar recently bought CAD 1.4188.
The Swiss franc held steady against the euro at 0.9289 against the common currency, but weakened on the back of a strengthening dollar, which rose 0.15% against the franc at 0.8842.
