THE US dollar pulled back from a 6½-month high against major currencies on Wednesday (Nov 13) after data showed US inflation for October increased in line with expectations, suggesting the Federal Reserve will keep cutting rates.
The greenback has risen to its highest level since May one buoyed by Donald Trump’s victory in the US presidential election last week, which sparked expectations of potential tariffs and other measures by his incoming administration seen as inflationary.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.1 per cent to 105.88 after reaching as high as 106.21.
Investors are pricing in policies of lower taxes and new trade tariffs under the incoming administration, measures seen as inflationary which could prompt the Federal Reserve to curb the extent of its easing of interest rates.
Meanwhile, Republicans inched closer to gaining full control of Congress, which would give the president-elect more power to advance his agenda.
“There is still scope for more dollar gains,” said Mitul Kotecha, head of FX & EM macro strategy at Barclays.
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The full magnitude of the threatened US tariffs on global imports, the potential fiscal stimulus through tax cuts and deregulation, as well as data that points to US economic strength continuing next year, are all supportive of the dollar, Kotecha said.
Fed chair Jerome Powell is scheduled to speak on Thursday, ahead of retail sales data on Friday.
Markets currently assign about a 62 per cent chance of another quarter-point cut from the Fed in December, down from around 84 per cent a month ago, according to CME Group’s FedWatch Tool.
Bitcoin paused its record-breaking climb, down about 0.7 per cent at US$87,872 after hitting an all-time high of US$89,998 on Tuesday. Trump has vowed to make the US “the crypto capital of the planet”.
Meme-based crypto token Dogecoin edged up after hitting its highest since at least 2021 as Trump said Elon Musk will co-lead Department of government Efficiency and the acronym of the newly created department – DOGE – references the name of the cryptocurrency that Musk has promoted in the past.
The yen broke through 155 per dollar, the Japanese currency’s weakest level since late July. It was last at 154.88 yen per dollar.
Japan’s wholesale inflation accelerated in October at the fastest annual pace in more than a year, complicating the Bank of Japan’s decision on how soon to raise interest rates.
The euro struggled for support amid political uncertainty as Germany, the bloc’s biggest economy, is set to hold snap elections on Feb 23, after the collapse of Chancellor Olaf Scholz’s governing coalition last week.
Meanwhile, markets are pondering potential Trump tariffs against Europe, as well as China.
The euro was last up 0.1 per cent at US$1.06295, near its one-year low of US$1.059425.
Sterling was flat at US$1.27485, close to a three-month low of US$1.27190 from Tuesday. REUTERS
