By Alun John and Kevin Buckland
LONDON/TOKYO (Reuters) – The dollar rose against European peers on Wednesday ahead of a long-awaited reading on U.S. inflation, also boosted by a Reuters report. China was considering allowing a weaker currency next year, sending the yuan and other Asian currencies lower.
The euro last fell 0.1% to $1.0515 a day before a European Central Bank meeting, and the pound fell 0.2% to $1.2747 as traders awaited US CPI data, which will be released at 1330 GMT.
Economists expect both consumer and retail prices to rise 0.3% in November, up from previous increases of 0.2% and 0.3% respectively.
Traders are currently pricing in an 85% chance of a quarter-point Fed rate cut on December 18, but higher-than-expected rates could potentially disrupt those expectations, and concerns about this supported the dollar on Wednesday.
“The market is thinking: what if that CPI report comes in strong?” and then some of the Fed’s dovish expectations could be priced out, which would support the dollar,” said Jane Foley, head of FX strategy at Rabobank.
She said the dollar was also affected by Reuters’ report that China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs during a second Donald Trump presidency in the United States.
The bigger gainers in the story were of course in Asia. The dollar jumped against the yuan but gave back some of these gains, last trading 0.1% higher against the offshore unit at 7.2662 and 0.14% higher against the onshore currency at 7.2590.
The considered move reflects China’s recognition that it needs a bigger economic stimulus to combat Trump’s threat of higher tariffs, people with knowledge of the matter said, the report said.
China is expected to hold its annual Central Economic Work Conference this week after the Politburo meeting on Monday pledged to move to “appropriately accommodative” monetary policy to boost economic growth.
“If a currency depreciation were to serve as a tactic to counter rate shocks, the likely escalating trade war could strengthen the US dollar’s exceptionalism and weigh on regional currencies,” said Ken Cheung, FX strategist at Mizuho (NYSE:).
China-exposed Antipodean currencies fell last 0.26% to $0.6361 and 0.34% lower to $0.5781, after both hit year-to-year lows after the report. Korea’s under-fire victory also fell.
The Japanese yen was also in the spotlight, weakening after a Bloomberg News report said the BOJ sees “little cost” in waiting for the next rate hike.
The dollar was last 0.43% higher at 152.63 yen.
Earlier in the day, the yen had strengthened after data showed Japan’s wholesale inflation accelerated, supporting the case for a Bank of Japan rate hike next week.
“The data is trending toward an increase,” said Bart Wakabayashi, co-branch manager at State Street (NYSE:) in Tokyo. “Put it this way, if they raise, it’s a very defensible position.”
At the same time, “we have seen very strong economic data overall in the U.S.,” Wakabayashi said.
“All the reasons why we bought the dollar in the first place still exist,” he said. “If you ask me if I think we will see 145 or 155 (yen per dollar), I would say 155 right now.”
In other central bank news, the Bank of Canada meets later Wednesday and the Swiss National Bank meets Thursday, just before the ECB.
It is believed that the BoC is likely to fall by half a point, helping to push the dollar’s near 4-1/2-year low. One US dollar last bought C$1.4179.
The Swiss franc strengthened the euro’s rate at 0.9283 against the common currency and remained stable against the dollar at one dollar at 0.8833 francs.
