The US dollar is falling as markets expect a drop in inflation, slowing Fed hikes

LONDON/NEW YORK (Reuters) – The dollar fell on Monday in thin trade as investors priced in a lower U.S. consumer inflation figure for November and the Federal Reserve likely to slow the pace of its rate increases at the close of its meeting. A two-day political meeting on Wednesday.

Consumer inflation data for November fell on Tuesday and is expected to show a rise of 6.1% in the core reading on an annual basis, excluding food and energy prices, down from 6.3% in October.

In late morning trading, the euro rose 0.1% against the dollar, to $1.0546. The single European currency has gained nearly 8% so far in the fourth quarter, as investors previously relied on the European Central Bank sticking to a path of aggressive rate hikes.

The dollar was little changed against the Swiss franc at 0.9348 francs.

Against the yen, however, the dollar rose 0.5%, to 137.24.

The dollar index, which measures the greenback’s value against six major currencies, fell 0.1% to 104.92.

“The dollar’s weakness suggests that the market is seeing lower inflation and that he’s hearing what (Fed Chairman Jerome) Powell is saying that the Fed is slowing down its rate hikes and the market is pricing in all of that,” said Joe. Perry, senior market analyst at FOREX.com and City Index in New York.

He added that the dollar index peaked on September 28 and fell to around 104.70, which is a 50% retracement from its lows to its highs for this year, which is also the 200-day moving average.

“It’s interesting that what it took us in the first three quarters to get to the top, we gave up in two months,” Perry said.

This week is one of the macro-packed so far this year, as four major central banks hold their final policy meetings for 2022.

The Federal Reserve, European Central Bank, Bank of England and Swiss National Bank will all release interest rate decisions this week.

The Fed is widely expected to raise interest rates by 50 basis points after a series of 75 basis point increases, especially given the tightness in the US labor market and the reasonably resilient economy.

“Given the close proximity to the FOMC,[consumer inflation data]clearly has the potential to change the tone of the message, the statement and the point charts, but is unlikely to change the headline rally by 50 basis points,” from Deutsche Substantive Research Bank, in a research note.

The dollar briefly rose as much as 0.5% against the pound after data showed Britain’s economy recovered in October from a public holiday for Queen Elizabeth’s funeral, but still pointed to a bleak outlook.

Sterling was last up 0.2% at $1.2283, after falling to an intra-session low of $1.2207, and little changed against the European single currency at 86.03 pence per euro.

The offshore Chinese yuan fell 0.1% against the greenback to 6.983 against the dollar, weighed down by concerns about a potential rise in COVID cases as China eases its tough COVID-19 restrictions.

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Coin bid prices at 10:39 am (1539 GMT)

(Reporting by Amanda Cooper in London and Gertrude Chavez-Dreyfus); Additional reporting by Rai Wei in Singapore; Editing by Lincoln Feist, Bradley Perrett, Christian Schmollinger, and Mark Heinrich

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