Global Currencies: dollar advances against rivals, after US CPI postpones Fed interest cuts

The dollar advanced against rivals this Tuesday, 13th, in the wake of strong consumer inflation (CPI) numbers from the United States. The reading surprised the market and dispelled expectations of interest rate cuts by the Federal Reserve (Fed).

At the end of the afternoon in New York, the dollar rose to 150.76 yen. The DXY index, which measures the dollar against a basket of six strong currencies, closed up 0.76%, at 104,960 points.

According to data from the Department of Labor, the US CPI increased 0.3% in January compared to the previous month and 3.1% at the annual rate, slowing down compared to December. However, the numbers surprised market expectations and pointed to the resilience of inflation and its core. This scenario postponed the pricing for the start of the Fed's interest rate cuts from May to June, according to the CME Group's monitoring tool, which strengthened the dollar against other currencies.

Director of Market Strategy at Ebury, Matthew Ryan believes that the data “bury once and for all” the possibility of a reduction in rates in March and put “at serious risk” the chance of leaders lowering interest rates in May. “The dollar reacted as expected to the news, with a general rally. In relation to the euro, the American currency is heading towards our target of 1.07 at the end of the first quarter”, assesses Ryan. At the time mentioned, the euro fell to US$ 1.0712.

The strength of the US currency erased the gains made by the pound, following the UK jobs report. Average wage growth advanced 6.2% in the quarter to December, while the unemployment rate fell to 3.8%. In Capital Economics' view, the data frustrates expectations and demonstrates a slow cooling of the labor market, reducing arguments for the Bank of England (BoE) to rush interest cuts.

Convera projects that, in this scenario, interest cuts in the United Kingdom should only happen in June, however, it points out that investors should wait for inflation data tomorrow to change their pricing. Tickmill Group shares this view and, in a note, projects that the pound will continue to be supported in the short term, if inflation data meets or exceeds consensus. At the markup, the pound fell to US$1.2589.

*With information from Dow Jones Newswires