Written by Hannah Lang
NEW YORK (Reuters) – The dollar rose on Wednesday after U.S. price data was in line with expectations, boosting expectations that the Federal Reserve will cut interest rates next week.
A Reuters report that China is considering allowing its currency to weaken next year also boosted the dollar, while the yuan and other Asian currencies weakened.
Data on Wednesday showed the consumer price index rose 0.3% last month, the biggest increase since April, after four consecutive months of 0.2% increases. Economists polled by Reuters had expected a 0.3% rise.
Following this report, the chance that the Fed will cut interest rates by a quarter of a percentage point on December 18th has increased to more than 94%, according to CME's FedWatch tool.
“The market is effectively as confident as possible that the Fed will continue to cut rates next week,” said Mark Chandler, chief market strategist at Bannockburn Forex in New York. “The Fed rarely goes against the market when odds are priced in this strong.”
The US dollar index last rose 0.329% to 106.7.
Analysts say Chinese leaders and policymakers are considering allowing the yuan to weaken in 2025 in preparation for higher trade tariffs under second-term President Donald Trump, Reuters reports. He also pointed out that it is also having an impact on the dollar.
The dollar rose 0.3% against the yuan to 7.2825 yuan against the offshore unit.
The planned move reflects China's recognition that a larger economic stimulus package is needed to counter President Trump's threat of higher tariffs, the people said.
“This will cause Asian currencies to depreciate further.” [and]Emerging markets will continue to weaken further,” said Helen Given, currency trader at Monex USA.
China is scheduled to hold its annual central economic work conference this week, after Monday's Politburo meeting vowed to switch to “appropriate easing” monetary policy to boost economic growth.
Ken Zhang, a foreign exchange strategist at Mizuho, said: “If currency depreciation acts as a tactic to counter tariff shocks, trade wars are likely to intensify, reinforcing (US dollar) exceptionalism and weighing on regional currencies. There is a possibility that it will happen.”
Currencies exposed to China fell, with the Australian currency down 0.11% to $0.6371 and the Kiwi currency down 0.26% to $0.579, both hitting new year-to-date lows after the report. The Korean won also fell.
All eyes were on Japan's yen after Bloomberg News reported that the Bank of Japan believes there is “little cost” in waiting for the next interest rate hike.
