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U.S. Dollar Appreciates As Hot Inflation Data Reinforces Fed Rate Hike Bets


The U.S. dollar drifted higher against its major counterparts in the European session on Wednesday, as the nation’s consumer inflation accelerated more than expected in June, cementing hopes for aggressive monetary policy tightening by the Federal Reserve.

Data from the Labor Department showed that the consumer price index shot up by 1.3 percent in June after jumping by 1.0 percent in May. Economists had expected consumer prices to leap by 1.1 percent.

Excluding increases in prices for food and energy, core consumer prices advanced by 0.7 percent in June after climbing by 0.6 percent in May. Core prices were expected to rise by another 0.6 percent.

With the bigger than expected monthly surge, the annual rate of consumer price growth accelerated to 9.1 percent in June, reflecting the biggest increase since November 1981.

Economists had expected the annual rate of consumer price growth to accelerate to 8.8 percent in June from 8.6 percent in May.

While the annual rate of core consumer price growth slowed to 5.9 percent in June from 6.0 percent in May, the rate of growth was expected to decelerate to 5.7 percent.

The red-hot inflation data supported expectations for a more aggressive tightening path from the Fed in the coming months.

The CME Group’s FedWatch tool indicates a 47.6 percent possibility of a 100 basis point rate hike at the Fed meeting later this month.

The greenback showed mixed trading against its major rivals in the Asian session. While it rose against the yen, it held steady against the euro and the franc. Versus the pound, it dropped.

The greenback appreciated to a 19-1/2-year high of 0.9998 against the euro, from a 2-day low of 1.0099 seen at 8:25 am ET. The pair had closed Tuesday’s deals at 1.0034. Further rally in the currency may challenge resistance around the 0.96 level.

Data from Destatis showed that Germany’s consumer price inflation moderated in June from a record high in May, as initially estimated.

Consumer price inflation eased to 7.6 percent in June from 7.9 percent in May. That was in line with flash data published on June 29.

The greenback was up against the yen, at a 2-day high of 137.72. The pair was worth 136.87 when it ended deals on Tuesday. The greenback may face resistance around the 139.00 region, if it gains again.

The greenback rebounded to 1.1827 against the pound, after dropping to a 2-day low of 1.1946 at 8:25 am ET. The pound-greenback pair had finished yesterday’s trading session at 1.1885. Next upside target for the greenback is likely seen around the 1.16 level.

Data from the Office for National Statistics showed that the UK economy recovered in May with more holiday bookings and visits to doctors.

Gross domestic product grew 0.5 percent from April, when output was down by revised 0.2 percent. Economists had forecast GDP to remain flat after April’s initially estimated 0.3 percent fall.

The greenback recovered to 0.9827 against the franc, following a 5-day low of 0.9755 it touched at 8:25 am ET. At Tuesday’s close, the pair was valued at 0.9817. The greenback is seen facing resistance around the 1.00 area.

The greenback approached 0.6726 against the aussie, up from a 2-day low of 0.6803 seen at 8:15 am ET. The aussie-greenback pair was worth 0.6755 at Tuesday’s close. Immediate resistance for the greenback is likely seen around the 0.66 level.

The greenback strengthened to more than a 2-year high of 0.6081 against the kiwi, after a fall to a 2-day low of 0.6159 at 8:15 am ET. At yesterday’s trading close, the pair was quoted at 0.6125. The greenback is likely to locate resistance around the 0.59 level.

In contrast, the greenback weakened to a 5-day low of 1.2937 against the loonie, retreating from a 1-week high of 1.3060 set at 8:30 am ET. The greenback was trading at 1.3022 per loonie at yesterday’s close. If the greenback slides further, it may find support around the 1.275 level.

U.S. monthly budget statement for June and Fed Beige book report are scheduled for release in the New York session.

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