The dollar index lost some ground after US consumer prices increased roughly in line with expectations in November as investors, who had feared a much higher inflation reading, bet that the actual number would not change the pace of interest rate hikes.
Labor Department data showed an increasing consumer price index (CPI) as the cost of goods and services rose broadly amid supply constraints for the largest annual gain since 1982.
The CPI rose 0.8 percent last month after surging 0.9 percent in October while in the 12 months through November, it rose 6.8 percent, following a 6.2 percent advance in October.
This compared with a 0.7 percent forecast from economists polled by Reuters.
“Coming into the report, there was some concern it might have been a little hotter,” said Mazen Issa, senior FX strategist at TD Securities. “Given how the dollar traded ahead of the report, this is more of a relief rally from the other currencies.”
Investors had been watching for a higher-than-consensus inflation reading and the possibility that such a reading would lead the Federal Reserve to signal a faster-than expected pace of interest rate hikes after the next Federal Open Market Committee (FOMC) meeting, which ends on Wednesday.
“Today isn’t going to change the message for next week. We’re going to see a hawkish Fed. We’re going to see a dot plot that moves higher,” said Issa.
With the dollar index up almost 7 percent for the year-to-date, Issa acknowledged that “a lot has already priced in,” but with overseas central banks looking less hawkish than the Fed, there was no credible alternative for currency investors.
