LONDON—The U.S. dollar held firm on Friday after its biggest daily increase since March the day before, as hot U.S. consumer prices data revived prospects that the Federal Reserve may have to raise rates further to get inflation back towards its 2 percent target.
The consumer price index (CPI) rose 0.4 percent in September, keeping the annual rate at 3.7 percent, the same as in August, while economists polled by Reuters had forecast it would gain 0.3 percent on the month and 3.6 percent year-on-year.
“The data will keep the Fed on its toes,” said Nicholas Van Ness, U.S. economist at Credit Agricole CIB.
“While our base case remains an extended pause that lasts into 2024, further upside surprises in upcoming CPI and employment reports could leave a hike on the table for December (or after),” Mr. Van Ness added.
The dollar index, which measures the U.S. currency against six of its major peers, ticked up 0.1 percent to 106.64, its highest level in a week. It rose 0.8 percent on Thursday, its biggest one-day jump since March 15.
Thursday’s boost to the greenback saw the yen head back toward the sensitive 150-line briefly touched last week before strengthening sharply, which led some to believe authorities were intervening in the currency market.
The Japanese currency was last at 149.60 per dollar, keeping traders on guard should the currency weaken further.
“The risk of intervention is clearly high and that is constraining dollar-yen which would otherwise be higher,” said Adam Cole, chief currency strategist at RBC.
“This resolves itself in one of two ways; either they intervene and dollar-yen dips and resumes trading up from a lower level, or it sticks in a range for a while and the probability of intervention slowly diminishes.”
The euro was down 0.1 percent at $1.0517, while sterling was last trading 0.1 percent lower at $1.2164.
Sweden’s crown edged up against both the dollar and euro after consumer price data came in higher-than-forecast, adding to risks that the Riksbank could raise rates further.
“These data reinforce the case for one more rate hike—especially as activity data such as the monthly GDP indicator have also held up relatively well in the past couple of months,” Capital Economics chief Europe economist Andrew Kenningham said.
Data from Sweden’s central bank showed it sold $390 million, but no euros, in the first week of its new currency hedging scheme, less than some analysts had been expecting.
Investors also digested producer and consumer prices data out of China on Friday that showed deflationary pressures were slightly stronger than expected.
China’s trade data for September, meanwhile, showed exports and imports both shrank at a slower pace for a second month, providing some encouragement to authorities concerned about slowing growth.
The offshore Chinese yuan stayed mostly flat at 7.3080 per dollar following the data.
The Australian dollar, which often trades as a proxy for Chinese growth, last sat at $0.6314. The New Zealand dollar eased 0.3 percent to $0.5910.
