Dollar gains ahead of inflation data, yuan steadies

[December 10, 2021]  LONDON (Reuters) - The dollar rose on Friday as traders prepared for U.S. inflation figures scheduled later in the day that could cement the course of interest rate rises next year, while the Chinese yuan regained its footing after a big tumble in the previous session.

The euro, seen as vulnerable to a Federal Reserve hike especially if European rate rises lag, dropped 0.4% on Thursday and was down another 0.2% in mid-session European trading to $1.1269, not far from its 2021 low of $1.1186.

The dollar index gained 0.2% to 96.412 and was headed for its seventh consecutive weekly rise ahead of the data, which is due at 1330 GMT. If U.S. inflation hits Reuters poll expectations of 6.8% then it would be the highest since 1982, and any upside surprise will be interpreted as a case for a faster Fed taper and rate rises.

U.S. consumer confidence data is also due on Friday, and if it holds up could portend more price pressures ahead.

Jim Reid, a strategist at Deutsche Bank, said hawkish comments recently pointed towards tighter policy and added that for inflation numbers, "the bar is extremely high for today's data print to alter their (policymakers') course, especially with the Covid outlook having not deteriorated markedly since his (Chair Jerome Powell's) testimony."

The Fed, European Central Bank, Bank of England and Bank of Japan all meet separately next week and the combination of higher inflation, possible central bank responses and the spread of the Omicron variant have set market volatility gauges surging.

China's yuan fell in onshore and offshore markets on Thursday after the People's Bank of China (PBOC) raised FX reserve requirements for the second time since June and was further pressured when the central bank set its trading band midpoint weaker than expected.

A U.S. one dollar banknote is seen in this illustration taken November 23, 2021. REUTERS/Murad Sezer/Illustration/File Photo

"The PBOC took another step to curb CNY appreciation through a weaker fixing this morning. The fading narrative of China welcoming a stronger CNY is, in our view, set to contribute to a strong dollar environment," ING analysts said.

However, sustained yuan buying from corporates who have amassed an enormous dollar stockpile over the pandemic years drove a bit of a recovery on Friday. [CNY/]

In offshore markets, it last traded at 6.3735 yuan per dollar. This week, the Chinese currency had risen to 6.33 per dollar, its highest since May 2018, before tumbling on Thursday.

The yen dropped, with the dollar adding 0.3% to 113.76 yen per dollar.

Sterling fell 0.2% to $1.3197 after disappointing GDP data for October. The fall takes the British currency back towards the 2021 low of $1.3161 plumbed this week after a strong dollar rattled most G10 currencies and the UK introduced new restrictions to fight the Omicron COVID-19 variant.

(Reporting by Tommy Wilkes; Additional reporting by Tom Westbrook in Sydney; Editing by Catherine Evans and Krishna Chandra Eluri)

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