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Dollar climbs as US inflation surge fuels rate hike speculation

Dollar climbs as US inflation surge fuels rate hike speculation

FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

LONDON/NEW YORK : The dollar index jumped sharply on Wednesday, with the euro hitting a 16-month low against the greenback, after U.S. consumer prices surged to their highest rate since 1990, fueling speculation that the Federal Reserve may raise interest rates sooner than expected.

The consumer price index rose 0.9per cent last month after gaining 0.4per cent in September and in the 12 months through October, the consumer price index accelerated 6.2per cent. the U.S. Labor Department said on Wednesday, while analysts expected on average the rise to be limited to 5.8per cent.

While the Fed last week restated its belief that the current inflation surge would be short-lived, many investors worry that underestimating price increases could prove to be a costly policy mistake.

At 1140 EDT (1640 GMT), the dollar index, which measures the greenback against six major currencies, was up 0.60per cent at 94.5230 after reaching a high of 94.609, just below its 13 and half-month high of 94.634 reached on Nov. 5.

While the Federal Reserve is already tapering its bond buying, rising inflation may force it to hike interest rates sooner than expected said Nancy Davis, founder of Quadratic Capital Management in Greenwich, Connecticut.

But "rate hikes might not be enough to reverse inflation because the sources of inflation involve supply chain bottlenecks and fiscal spending, which are two areas that the Federal Reserve doesn't control” she said.

“If inflation doesn't subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” said Davis.

Against Japan's yen the greenback was last up 0.85per cent to 113.86 yen after touching a session high of 113.940. On Tuesday the dollar had hit a month-low against the yen.

Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York said the "pretty shocking" inflation data including sharp housing price increases suggest that high consumer prices are "not likely to prove transitory."

The euro was last down 0.61per cent at US$1.1523 after earlier touching US$1.15115, its lowest level since July 21, 2020.

Hammered last week after the Bank of England's surprise decision to keep rates unchanged, sterling was last down 0.59per cent at US$1.3482, but still holding above Friday's more than one-month low of US$1.3425.

The Australian dollar was down 0.24per cent against the greenback at US$0.7363 after earlier hitting US$0.7341, its lowest level since Oct. 13. The New Zealand dollar was down 0.55per cent against the U.S. dollar at US$0.7091.

"What do these numbers say? Simply that inflation is going to be long-lasting and structural inflation has picked up speed," said Peter Cardillo, chief market economist at Spartan Capital Securities In New York.

"The bottom line is that this is going to be a real challenge for the Fed in the coming months and suggests that inflation has not peaked," he added.

Data had also shown on Tuesday that U.S. producer prices increased solidly in October, driven by surging costs for gasoline and motor vehicle retailing, suggesting that high inflation could persist.

In cryptocurrencies, bitcoin jumped to an all-time high of US$69,000.00 after the U.S. inflation data and was last up 2.5per cent at US$68,632.87.

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Currency bid prices at 11:40AM (1640 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 94.5230 93.9720 +0.60per cent 5.048per cent +94.6090 +93.9620

Euro/Dollar US$1.1523 US$1.1596 -0.61per cent -5.68per cent +US$1.1595 +US$1.1512

Dollar/Yen 113.8600 112.8800 +0.85per cent +10.18per cent +113.9400 +112.7800

Euro/Yen 131.21 130.87 +0.26per cent +3.38per cent +131.4100 +130.6600

Dollar/Swiss 0.9159 0.9112 +0.53per cent +3.54per cent +0.9168 +0.9110

Sterling/Dollar US$1.3482 US$1.3560 -0.59per cent -1.33per cent +US$1.3565 +US$1.3469

Dollar/Canadian 1.2439 1.2436 +0.03per cent -2.31per cent +1.2458 +1.2387

Aussie/Dollar US$0.7363 US$0.7380 -0.24per cent -4.30per cent +US$0.7393 +US$0.7341

Euro/Swiss 1.0553 1.0560 -0.07per cent -2.35per cent +1.0571 +1.0547

Euro/Sterling 0.8544 0.8551 -0.08per cent -4.40per cent +0.8560 +0.8532

NZ US$0.7091 US$0.7130 -0.55per cent -1.27per cent +US$0.7132 +US$0.7077

Dollar/Dollar

Dollar/Norway 8.5895 8.5025 +0.93per cent -0.06per cent +8.6000 +8.5215

Euro/Norway 9.8995 9.8640 +0.36per cent -5.43per cent +9.9080 +9.8519

Dollar/Sweden 8.6668 8.5735 +0.54per cent +5.74per cent +8.6705 +8.5738

Euro/Sweden 9.9875 9.9334 +0.54per cent -0.88per cent +9.9883 +9.9400

(Reporting by Sinéad Carew and Stephen Culp in New York, Julien Ponthus and Saikat Chatterjee in London; Kevin Buckland in Tokyo Editing by Emelia Sithole-Matarise, Alex Richardson and Alison Williams and David Gregorio)

Source: Reuters

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