Investing.com – The US dollar rose on Wednesday ahead of a volatile expected consumer inflation report for November, hitting the euro and sterling while the Chinese yuan retreated on reports Beijing is considering allowing the currency to weaken.
At 05:15 ET (10:15 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.3% higher at 106.410.
US CPI in the spotlight
The dollar rallied Wednesday ahead of a long-awaited reading of U.S. inflation that could provide clues about the pace of Federal Reserve rate cuts.
The report is expected to show that it rose to 2.7% in November, above 2.6% the previous month, a monthly increase of 0.3%. The, which excludes volatile food and energy components, is expected to come in at 3.3%, unchanged from October, also up 0.3% on a monthly basis.
“While it is tempting to say the Fed has moved on from the inflation story, any upside surprise to the already high consensus forecast for core inflation at 0.3% month-on-month would likely send the dollar higher,” said analysts at ING, in a note.
“This is because the market now has an 88% chance of a 25 bp-fed rate cutting next Wednesday and a High Core CPI reading could make it more of a 50:50 proposition.”
It has cut interest rates by 75 basis points since September and markets are currently expecting another 25-bbs called for at the December 17-18 meeting.
Euro weakens for ECB
In Europe, it fell 0.2% to 1.0501 ahead of Thursday’s policy meeting by the European Central Bank, its final policy meeting of the year.
It is widely expected to agree to another 25 bps rate, the fourth such cut this year.
“It has been a very quiet week on the European data calendar as investors await the main event of the week – tomorrow’s ECB decision,” ING added.
“Market prices have settled on a 25bp ECB rate cut – such a cut seems like a done deal for the market,” Ing said, but “the press conference could open up the discussion for more cuts later, implying a dovish outcome for EUR.”
traded 0.3% lower to 1.2731, while up 0.1% to 0.8841, with markets expecting another rate cut on Thursday, possibly by as much as 50 basis points.
China considers weaker yuan
In Asia, it rose 0.4% to 7.2809 after Reuters reported that China is considering allowing the yuan to weaken in 2025 for higher trade tariffs in a second Donald Trump presidency.
Traders are also watching headlines from the Chinese Central Economic Work Conference in China, which runs this week.
China has committed to implementing more proactive fiscal stimulus measures and moderately loosening monetary policy in 2025.
WERE 0.5% to 152.70 after data showed Japan’s wholesale inflation rose in November as companies faced higher labor and raw material costs.
Markets are divided over whether the BOJ will raise interest rates again ahead of the two-day policy meeting ending on December 19. The central bank has raised rates twice this year on a pick-up in inflation and wages, although momentum in the two has slowed somewhat in recent months.
