Dollar holds on to gains after firm US inflation; focus turns to China data

TOKYO, Oct 13  – The dollar remained firm on Friday, putting pressure across a basket of currencies as stronger-than-expected U.S. consumer inflation revived prospects that the Federal Reserve will have to keep rates higher for longer.

US consumer prices were pushed higher by a jump in rental costs in September, data showed on Thursday. Although steady moderation in underlying inflation pressures supported expectations that the Fed would not hike interest rates next month, the data did raise the chance of rates staying elevated for some time.

“CPI data for September reveal further challenges with the ‘last mile’ in pushing inflation persistently back towards the 2% target,” said David Doyle, Macquarie head of economics, in a note.

The dollar index, which measures the US currency against six of its major peers, sat at 106.49 in the Asian morning.

The boost to the greenback overnight saw the yen sliding back toward the sensitive 150-line briefly touched last week, with the Japanese currency last at 149.75 per dollar.

Markets fear Japanese authorities may intervene if the yen weakens past the 150 level, considered by some market traders as a line-in-the-sand that could spur action from Tokyo as it did last year.

On the day, markets are also focused on a handful of economic data from China out later in the Asian morning, including trade data, consumer inflation and producer prices for September.

“Given the shift in language from China’s central government about more significant fiscal stimulus…investors will welcome signs that the data provides ample scope to allow for more of it,” said Kyle Rodda, senior financial market analyst at Capital.com, in a note.

Bloomberg News reported earlier in the week that China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the official growth target.

Ahead of the data, the offshore Chinese yuan was flat versus the greenback at USD 7.3075.

The Australian dollar, which often trades as a proxy for China growth, stood at USD 0.6321, while the kiwi fell to USD 0.59275.

Elsewhere, the euro ticked up nearly 0.1% to USD 1.0536 after taking a tumble overnight against the dollar.

Sterling was last trading at USD 1.21885.

(Reporting by Brigid Riley. Editing by Shri Navaratnam)