Dollar Down Ahead of U.S. Inflation Data, PBOC Raises FX Reserve Requirements

Dollar Down Ahead of U.S. Inflation Data, PBOC Raises FX Reserve Requirements
© Reuters.

By Gina Lee – The dollar was down on Friday morning in Asia ahead of U.S. inflation data that could provide clues as to when the Federal Reserve will hike interest rates. The Chinese yuan also recorded its sharpest drop in months after authorities moved to halt its recent rally.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.07% to 96.183 by 10:14 PM ET (3:14 AM GMT).

The USD/CNY pair edged down 0.15% to 6.3678 and the USD/JPY pair inched up 0.06% to 113.50.

The AUD/USD pair inched up 0.07% to 0.7154 and the NZD/USD pair inched up 0.10% to 0.6800.

The GBP/USD pair inched up 0.06% to 1.3226.

The U.S. currency is moving towards its seventh consecutive weekly rise ahead of the U.S. data, including the consumer price index (CPI) and due later in the day.

\”Inflation is going accelerate,\” said RBC Capital Markets chief U.S. economist Tom Porcelli, who predicts that the annual pace will rise to push near 7% in early 2022.

\”As a result, we think that combination means a hike in March 2022 is very possible… the market is pricing in about a 40% chance of that, but we now think it\’s a bit higher. It\’s probably closer to a coin flip now,” he added.

Investors also await policy decisions from the Fed, European Central Bank, Bank of England, and Bank of Japan next week.

\”Judging by the way the dollar is trading… I\’d argue traders are positioning for a higher CPI print which cements a view that the Fed will increase the pace of tapering its quantitative easing program,\” Pepperstone head of research Chris Weston told Reuters.

\”While form suggests we get a beat, we obviously can\’t dismiss a poor number, and of course an inline print. I think if we get 6.4% or below then AUD/USD should fly.\”

Meanwhile, the People’s Bank of China raised FX reserve requirements for the second time since June 2021, dunking the yuan about half a percent in offshore trade on Thursday.

The move will also encourage yuan selling and cool a rally that has lifted the Chinese currency by more than 2% against the dollar since late July 2021. \”It also sent a clear signal on PBOC\’s discomfort on the rapid and continued appreciation of the currency,\” Goldman Sachs analysts said in a note.

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