Dollar notches longest
run of gains in five years before CPI data
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[February 15, 2017]
By Patrick Graham
LONDON
(Reuters) - The dollar chalked up its 11th straight daily rise on
Wednesday, as investors' focus moved to inflation data in the United
States for more support for the idea of a rise in Federal Reserve
interest rates next month.
European trade in the major currencies was dominated by dips for the
Swedish crown and sterling after the Riksbank and a report on the UK
labor market sounded cautious notes on their respective economic
outlooks.
Fed chief Janet Yellen testifies for a second day in Congress after
spurring more gains for the dollar on Tuesday by telling lawmakers that
the U.S. central bank would consider raising rates at one of its
"upcoming" meetings.
For markets that pointed to a hike in either March or May. It also opens
the door to the Fed raising the return for holding dollars more than
twice before the end of the year, beyond what investors have currently
priced into short-term interest rates.
Consumer inflation is forecast to have risen to 2.4 percent in January
and producer price numbers on Tuesday were generally higher than
expected. The dollar's run of daily gains is now its longest since the
peak of the euro zone's debt crisis in 2012.
"After Yellen’s testimony, CPI data are the pick of the week for the
U.S.," said Elsa Lignos, senior currency strategist with RBC Capital
Markets. "The risks are skewed to a higher print, particularly given the
consumer component from yesterday’s strong PPI data."
The CME FedWatch indicator puts the chances of a rise in March at just
17 percent, but some market participants say the pricing of market
interest rates points to odds of 30 percent or more, rising to more than
50 percent for May.
The dollar index, which measures the currency against its six major
peers, was last up 0.2 percent at 101.43, its highest since Jan. 20. It
rose 0.3 percent to 114.58 yen and $1.0552 per euro.
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United States one dollar bills are seen on a light table at the
Bureau of Engraving and Printing in Washington in this November 14,
2014, file photo. REUTERS/Gary Cameron/Files
"It is
all about the dollar for now," analysts from Bank of America Merrill Lynch said
in a report forecasting the euro to weaken to $1.02 in the months ahead. "We
expect U.S. fiscal stimulus, which together with political risks in Europe
should help to weaken the euro in the first half of the year."
Like a
number of other major investment houses, it was less confident, however, about
the dollar's ability to push past parity after a series of failures over the
past two years.
While the dollar has gained steadily so far in February, the enthusiasm among
investors that drove it higher after Donald Trump's election, assuming he would
reflate the U.S. economy, has been muted by concerns over protectionist trade
policy and his attitude to the dollar.
The row over national security adviser Mike Flynn this week has only added to
that political noise.
"It’s the policy mix that has troubled us since the election, this trade off
between 'good' dollar policies and other policies that are more problematic for
the currency," said Paul Meggyesi, a strategist with JP Morgan in London.
"We did flip two weeks ago to a modest net short against the franc and the yen.
Chances are the dollar, as it has been doing in recent weeks, will drift around
in a tight consolidative range."
(Editing by Larry King)
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