Dollar Up, Boosted by Highest U.S. Inflation in a Generation

The dollar was up on Thursday morning in Asia. The U.S. currency was at its highest levels in 2021 against the pound and the euro, while the yen took a sharp fall after U.S. inflation rose to its highest level in a generation and fanned bets on interest rate hikes.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.07% to 94.905 by 11:50 PM ET (4:50 AM GMT).

The USD/JPY pair inched up 0.07% to 113.98.

The AUD/USD pair was down 0.38% to 0.7298 and the NZD/USD pair was down 0.29% to 0.7038.

The USD/CNY pair was up 0.27% to 6.4055.

The GBP/USD pair inched down 0.03% to 1.3405. The U.K. releases growth data, including its GDP for the third quarter, later in the day.

The euro slid 1% to $1.1476, its lowest level since July 2020, after the U.S. released inflation data on Wednesday. The data showed that the consumer price index (CPI) grew 6.2% year-on-year and 0.9% month-on-month in October. The core CPI rose 4.6% year-on-year and 0.6% month-on-month.

U.S. Treasury yields also surged. These rates move, especially at the short end, suggest traders believe the U.S. Federal Reserve will step in to hike interest rates if prices keep running higher, National Australia Bank (OTC:NABZY) head of FX strategy, Ray Attrill told Reuters.

“The market is still conferring a degree of credibility on the Fed, that they are not going to allow very high inflation to persist indefinitely,” and if the dollar index moves higher than 95, investors might start to get out of the way, he said.

“It’s quite a big level technically and if we can break up through that then there will be more people throwing in the towel.”

In Asia Pacific, Australia also released employment data earlier in the day. The data showed that the employment change contracted by 46,300 and the full employment change contracted by 40,400 in October. The unemployment rate increased to 5.2%.

Investors now look to the data’s impact on the Fed’s next moves to gauge the likelihood of further dollar gains.

“From a forex standpoint we are in a stand-off,” Deutsche Bank (DE:DBKGn) strategist Alan Ruskin told Reuters.

“On the dollar, we have the classic dilemma. If the Fed won’t respond to high inflation, it is dollar negative, if the Fed brings forward tightening it is dollar positive. Right now, the dollar is broadly stuck between these two worlds,” he added.

Dollar Up, Boosted by Highest U.S. Inflation in a Generation