Dollar higher on fresh inflation data, euro lower after ECB rate cut

NEW YORK – The US dollar rose on Thursday after a hotter-than-expected inflation readout while the euro traded a touch lower following the European Central Bank’s decision to cut interest rates for the fourth time this year.

A Labor Department report on Thursday showed producer prices rose 0.4% on a monthly basis in November, compared with estimates of a 0.2% rise as per economists polled by Reuters.

The dollar index, which measures the currency against a basket of six others, was last up 0.375% at 106.95, a day after a separate US inflation reading cemented bets for a rate cut from the Federal Reserve next week.

Markets are now almost fully pricing a 25 basis point cut at the Fed’s Dec. 17-18 meeting, compared with about a 78% chance a week ago, the CME FedWatch tool showed.

“Although the Fed is seen cutting its benchmark by a quarter point, moves in the last 24 hours — from the Bank of Canada, Swiss National Bank, and European Central Bank — have ensured that cross-currency rate differentials will remain wide relative to the US, maintaining the dollar’s position in relative terms,” said Karl Schamotta, chief market strategist at Corpay, in a note.

The ECB on Thursday cut interest rates by 25 basis points and kept the door open to further easing ahead as inflation closed in on its goal and the economy remains weak.

The euro was last down 0.2% against the dollar at USD 1.0473.

The Swiss franc was up against the dollar after the Swiss National Bank opted for a 50 basis point interest rate cut. A majority of economists surveyed by Reuters had expected a smaller 25 basis point move.

The dollar was up 0.78% at 0.89135 francs.

“There will be some headwinds in the near term,” said Kirstine Kundby-Nielsen, FX research analyst at Danske Bank, about the Swiss franc after the rate cut.

“But more broadly I still think euro-Swiss will go lower, the franc will strengthen, if we look at the next couple of months ahead as I don’t think the picture is very rosy in the euro area.”

The dollar was slightly higher at 152.525 yen, after hitting a two-week high of 152.845 yen the previous day as market players trimmed back bets for a rate hike in Japan next week.

Reuters reported on Thursday that the BOJ is leaning toward keeping rates steady, as policymakers prefer to spend more time scrutinizing overseas risks and clues on next year’s wage outlook.

But with markets now eyeing a rate hike just a month later in January, the shift has not really become a big driver for investors to pile into the dollar against the yen, said Akira Moroga, chief market strategist at Aozora Bank.

“There were expectations for December, so dollar/yen has been rising from around 150 yen to about the 200-day average,” he said.

The Australian dollar was down 0.06% at USD 0.6365, pulling further away from the just over one-year low of USD 0.63370 touched on Wednesday.

Australia’s jobless rate posted a shock decline to an eight-month low in November, prompting markets to scale back bets for easing from the Reserve Bank of Australia in February.

The kiwi was last down 0.25% at USD 0.577, after hitting its lowest since Nov. 2022 at USD 0.57625 in the previous session.

The yuan was last trading around 7.2772 per dollar in offshore trading.

China pledged on Thursday to increase its budget deficit, issue more debt, and loosen monetary policy to maintain stable economic growth

(Reporting by Hannah Lang in New York; Additional reporting by Samuel Indyk in London and Brigid Riley; Editing by William Maclean, Franklin Paul, and Nick Zieminski)

China deepens stimulus drive, global signals mixed

Asian markets are set to end the week on the defensive, pressured by rising US bond yields and a firmer dollar, with investors ready to reduce risk exposure as they ponder the cross-currents sweeping through the emerging world.

China’s latest pledges – to widen the budget deficit, issue more debt and loosen monetary policy – have generally been welcomed, but Brazil’s surprisingly aggressive interest rate hike and promise of more to come has had a more mixed impact.

Chinese and Hong Kong stocks bounced strongly on Thursday, and barring a fall of 1.4% or more on Friday, blue chip Chinese stocks will register their third weekly rise in a row, a winning streak not seen since May.

The yuan fell on the stimulus news, as expected, but not by much. Indeed, going into Friday’s session, the onshore yuan is set to break a remarkable run of 10 consecutive weekly declines.

Even less surprising, perhaps, was another leg lower in Chinese bond yields. The 10-year yield is at record lows and is on course for its biggest weekly fall since 2020.

Wall Street understandably took a breather on Thursday after the previous day’s somewhat surprising surge. The S&P 500 fell 0.5% and is poised for a modest fall on the week, and the Nasdaq backed off Wednesday’s record high above 20,000.

It’s still on course for its fourth consecutive weekly rise though, and remarkably, it has declined in only two weeks out of the last 14. The AI-driven bull run in US tech shows every sign of powering on into the year end with Hong Kong’s benchmark tech index is up 3% for the week.

The wider policy and market sentiment thermometer is also sending mixed signals. The Swiss National Bank delivered a jumbo rate cut on Thursday, bringing the zero bound into view and floating the possibility of negative rates, if they are needed.

The European Central Bank cut rates by a more modest 25 basis points, as expected, but was more cautious in its guidance. And hot US producer price inflation pushed up Treasury yields, while punchy jobless claims data stoked concern about the labor market.

All in all, a very mixed bag, and investors may well be relieved that the weekend is near.

Asia’s economic calendar on Friday is light. The two main indicators are India’s wholesale inflation for November, which is expected to ease a bit to 2.2% on an annual basis from 2.36% in October, and Japan’s fourth quarter Tankan survey of business sentiment.

The Australian dollar and Philippine peso could move on scheduled speeches from RBA Assistant Governor Sarah Hunter and Philippine central bank governor Eli Remolona, respectively.

Here are key developments that could provide more direction to markets on Friday:

– Japan Tankan survey (Q4)

– India wholesale inflation (November)

– New Zealand manufacturing PMI (November)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)

Dollar higher after CPI; China considers letting yuan weaken

NEW YORK – The dollar was higher on Wednesday after US price data came in line with forecasts, reinforcing expectations the US Federal Reserve would cut interest rates next week.

The dollar was also boosted by a Reuters report China was considering allowing a weaker currency next year, which sent the yuan and other Asian currencies lower.

The consumer price index rose 0.3% last month, the largest gain since April after advancing 0.2% for four straight months, data showed on Wednesday. Economists polled by Reuters had forecast the index would rise 0.3%.

Following the report, the likelihood of a quarter-point rate cut by the Fed on Dec. 18 rose to more than 94%, according to CME’s FedWatch tool.

“The market is as confident as possible, practically, that the Fed is still going to cut rates next week,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York. “Very rarely does the Federal Reserve go against the market when such strong odds are priced in.”

The US dollar index was last up 0.329% at 106.7.

Analysts said the dollar was also being affected by Reuters’ report that China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs under a second Donald Trump presidency.

Against the yuan, the dollar was last up 0.3% against the offshore unit at 7.2825.

The contemplated move reflects China’s recognition that it needs bigger economic stimulus to combat Trump’s threat of bigger tariffs, people with knowledge of the matter said, according to the report.

“That’s going to keep Asian currency more depressed [and]keep emerging markets more depressed,” said Helen Given, FX trader at Monex USA.

China is expected to hold its annual Central Economic Work Conference this week, after Monday’s Politburo meeting vowed to switch to an “appropriately loose” monetary policy to spur economic growth.

“If a currency depreciation served as a tactic to counter tariff shock, the likely escalating trade war could reinforce (US dollar) exceptionalism and weigh on regional currencies,” said Ken Cheung, FX strategist at Mizuho.

China-exposed currencies fell, with the Aussie AUD=D3 last down 0.11% to USD 0.6371 and the kiwi 0.26% lower at USD 0.579, after both touched on year lows after the report. Korea’s under-fire won also dipped.

Japan’s yen was in focus after Bloomberg news reported the Bank of Japan sees “little cost” to waiting for the next rate hike.

The dollar was last 0.44% higher at 152.63 yen.

Earlier in the day, the yen strengthened after data showed Japanese wholesale inflation accelerated, supporting the case for a Bank of Japan interest-rate hike next week.

On Wednesday, the Bank of Canada slashed its key policy rate by 50 basis points to 3.25% to help address slower growth. That move helped keep the loonie near a 4-1/2-year low against the greenback. One US dollar last bought CUSD 1.4156.

In a busy week for monetary policy, the European Central Bank and Swiss National Bank will meet on Thursday.

The euro was down 0.34% at USD 1.0492, while the Swiss franc was down 0.21% against the dollar at 0.8846.

(Reporting by Hannah Lang in New York; additional reporting by Alun John in London and Kevin Buckland in Tokyo; Editing by Sam Holmes, Will Dunham, Toby Chopra, and Christina Fincher)

Gold advances as inflation data fuels Fed rate cut optimism

Gold gained on Wednesday after an inflation print came in line with expectations, boosting the likelihood of a Federal Reserve rate cut next week, while investors awaited US Producer Price Index (PPI) data for further direction on monetary policy.

Spot gold climbed 0.9% to USD 2,717.29 per ounce, as of 01:41 p.m. ET (1841 GMT). Spot prices for bullion hit a record high of USD 2,790.15 an ounce on Oct. 31.

US gold futures settled 1.4% higher at USD 2,756.70.

The US consumer prices rose 0.3% on a monthly basis in November, data from the Labor Department showed. Annually, it climbed 2.7% after increasing 2.6% in October.

Economists polled by Reuters had forecast the CPI rising 0.3% and advancing 2.7% year-on-year.

“Gold is higher on the back of the premise that CPI data coming in benign or certainly in line with expectations, inflation not rising any further but remaining steady will allow the Fed to almost certainly cut rates at the next FOMC meeting,” said David Meger, director of metals trading at High Ridge Futures.

Traders predict a 95% chance of a further 25-basis-point cut at the Fed’s Dec. 17-18 meeting, compared with an about 86% chance seen before the inflation report, CME’s FedWatch Tool showed.

All eyes are now on the PPI data, due on Thursday for further clarity on the Fed rate cut path.

“We expect gold to reach fresh new highs in 2025, with the elevated bond yields we have today easing over the course of the year and geopolitical risks remaining a supportive driver of gold sentiment,” Nitesh Shah, commodity strategist at WisdomTree, said.

“We believe gold could reach USD 3,000/oz by the end of 2025.”

Gold, traditionally reputed as a safe investment during times of geopolitical uncertainty, thrives when interest rates are low.

Spot silver added 0.1% to USD 31.92 per ounce, platinum dropped 0.8% to USD 935.18 and palladium gained 1% to USD 977.50.

(Reporting by Anushree Mukherjee and Anjana Anil in Bengaluru; Editing by Franklin Paul, Alexander Smith, and Krishna Chandra Eluri)

Oil settles up USD 1 as EU agrees further sanctions threatening Russian oil flows

Oil prices settled more than USD 1 higher on Wednesday after the European Union agreed to an additional round of sanctions threatening Russian oil flows that could tighten global crude supplies.

Brent crude futures settled up USD 1.33, or 1.84%, to USD 73.52 a barrel. US West Texas Intermediate crude futures rose USD 1.70, or 2.48%, to USD 70.29.

European Union ambassadors agreed on Wednesday to a 15th package of sanctions on Russia over its war against Ukraine, the Hungarian EU presidency said.

“I welcome the adoption of our 15th package of sanctions, targeting in particular Russia’s shadow fleet”, European Commission President Ursula von der Leyen said on X.

The “shadow fleet” has aided Russia in bypassing the USD 60 per barrel price cap imposed by the G7 on Russian seaborne crude oil in 2022, and has helped keep Russian oil flowing.

“The renewed seriousness about clamping down on flows here is potentially supportive, and is offsetting the traditional demand metric that we have been focusing on,” said John Kilduff, partner at Again Capital in New York.

Curbing price gains on Wednesday, gasoline and distillate inventories rose by more than expected last week, according to data from the Energy Information Administration, weighing on crude prices.

Meanwhile, producers’ group OPEC cut its forecasts for demand growth in 2024 and 2025 for the fifth straight month on Wednesday and by the largest amount yet.

“OPEC are squaring up to reality about what they are facing, the (demand growth forecast) cuts highlight that they have their hands full in terms of trying to balance this market heading into 2025,” Again Capital’s Kilduff added.

OPEC+, which groups members of the Organization of the Petroleum Exporting Countries with other producers such as Russia, earlier this month delayed plans to start raising output.

Weak demand, particularly in top importer China, and non-OPEC+ supply growth were two factors behind the move.

However, investors anticipate a rise in Chinese demand following Beijing’s latest plans to boost economic growth.

China said on Monday it would adopt an “appropriately loose” monetary policy in 2025 marking the first easing of its stance in 14 years.

“It’s uncertain whether China can fully kick start growth in 2025,” said Global X research analyst, Kenny Zhu.

“We believe Chinese monetary and fiscal stimulus will be key data points to watch for the coming year,” Zhu added.

Chinese crude imports also grew annually for the first time in seven months in November, up more than 14% from a year earlier.

Meanwhile, the Kremlin said that reports of a possible tightening of US sanctions on Russian oil suggested the administration of US President Joe Biden wants to leave a difficult legacy for US-Russia relations.

Treasury Secretary Janet Yellen said on Wednesday that the US is continuing to look for creative ways to reduce Russia’s oil revenue and lower global demand for oil create an opportunity for more sanctions.

(Reporting by Georgina McCartney in Houston, Arunima Kumar in Bengaluru, Jeslyn Lerh in Singapore, and Nicole Jao in New York; editing by Saad Sayeed, Jason Neely, Keith Weir, Diane Craft, and David Gregorio)

Yields rise on supply, inflation data boosts Fed rate cut expectations

US Treasury yields rose on Wednesday as the Treasury Department sold long-dated supply and data showed a widening US budget deficit.

That overturned an earlier drop in yields after consumer price inflation data for November reinforced bets the Federal Reserve will cut rates by 25 basis points next week.

Longer-term debt concerns were seen weighing on the market after the US government posted a USD 367 billion budget deficit for November, up 17% from a year earlier.

“Not only does today’s report from the Treasury confirm that we’ve borrowed USD 624 billion so far this fiscal year – USD 10 billion per day – but on a rolling basis, we’ve borrowed USD 2.1 trillion in the last twelve months. That’s an astonishing sum especially when considering the huge challenges ahead,” the Committee for a Responsible Federal Budget said in a release.

The Treasury Department earlier saw good demand for a USD 39 billion sale of 10-year notes, the second sale of USD 119 billion in coupon-bearing sales this week.

The debt sold at a high yield of 4.235%, more than a basis point below where they had traded before the sale. Demand was 2.70 times the amount of debt on offer, the highest bid-to-cover ratio since at least March 2022.

The US government saw solid demand for a USD 58 auction of three-year notes on Tuesday and will also sell USD 22 billion in 30-year bonds on Thursday.

Benchmark 10-year note yields were last up 5 basis points on the day at 4.271%.

Interest rate sensitive two-year note yields rose 1 basis point to 4.159%.

The yield curve between two-year and 10-year notes steepened by around three basis points to 11.3 basis points.

Yields fell earlier after data showed that both headline and core consumer inflation rose by 0.3% in November, in line with economists’ expectations, keeping the Fed on track for another interest rate cut.

“It was largely as expected. I don’t think it will change the Fed’s thinking, so I expect them still to cut rates next week,” said Eric Winograd, director of developed market economic research at AllianceBernstein in New York.

The consumer price index posted the largest gain since April after advancing 0.2% for four straight months. In the 12 months through November, the CPI climbed 2.7% after increasing 2.6% in October.

Excluding the volatile food and energy components, the CPI rose by the same margin for the fourth consecutive month. In the 12 months through November, the so-called core CPI gained 3.3%, following a similar advance in October.

“With the payrolls report behind us and now the inflation report behind us, there’s nothing stopping the Fed from cutting 25 bps next week,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

Traders are pricing in a 95% probability of a 25 basis point cut at the conclusion of the Fed’s Dec. 17-18 meeting, up from 86% before the data, according to the CME Group’s FedWatch Tool.

A positive sign in the data was that shelter inflation continued to slow, but services and shelter inflation are still higher than the Fed would like, said Winograd.

“As a result of that, I expect them to signal next week some caution and cut rates, but to indicate that they’re not locked into cutting rates every meeting, that they’re going to have to continue to watch the data and that they will eventually need to see additional downward momentum in inflation,” he said.

Traders see the Fed as likely to pause rate cuts in January. The trajectory of rates then may depend on how quickly policies by the new Trump administration are introduced, and when they begin to be seen in the economic data.

(Reporting By Karen Brettell; Additional reporting by Chuck Mikolajczak; Editing by Christina Fincher, Bernadette Baum, and Deepa Babington)

US dollar rises, Aussie drops after Chinese trade data

NEW YORK – The dollar rose on Tuesday ahead of US inflation data that could offer clues about the Federal Reserve’s monetary-easing path, while analysts assess the likely impact of President-elect Donald Trump’s policies when he begins his second term.

The Australian dollar dropped sharply against the US dollar as the Reserve Bank of Australia softened its tone on the inflation outlook. Its rally the day before sparked by China stimulus pledges also tapered off after weak Chinese trade data.

Money markets are pricing an 86% chance of a 25-bps rate cut by the US Federal Reserve next week, but investors will still be looking closely at an expected readout of Consumer Price Index data on Wednesday.

“Obviously the market’s kind of nervous about a stronger print, which might lead to a slightly more hawkish outlook on the Fed, or maybe a little bit of a repricing,” said Brad Bechtel, global head of FX at Jefferies. “I think the market is looking to see if CPI influences the decision on the December meeting, which right now is pretty much close to 100% priced, but not 100% priced.”

The US dollar rose 0.47% to 151.925 yen. The dollar index, which measures the currency against the yen and five other major peers, rose 0.23% to 106.4.

Market participants see little action before a busy second half of the week with the US data and European Central Bank policy meeting.

An ECB quarter-point cut is baked in, but investors will focus on the communication, which could provide clues about the central bank’s future moves.

The euro dropped 0.27% to USD 1.0526.

The Aussie fell 0.93% to USD 0.6381, after earlier dropping to its lowest level since August.

It rose 0.8% the previous day after China pledged an “appropriately loose” monetary policy next year.

“If we can get Chinese stocks to rally, China-sensitive commodities like copper to rally, that could depress the US dollar a little bit,” said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull. “You can feel there’s a lot of pressure over there to do something.”

China’s exports grew at a slower pace in November, while imports unexpectedly shrank, affecting expectations for the Australian economy, as China is its largest trading partner.

Chinese equities eased gains while Hong Kong stocks declined as the initial optimism over Beijing’s policy shift faded.

The RBA held rates steady as expected, but noted the board had gained “some confidence” inflation was heading back to target.

“A full pricing-in (of a rate cut) over the next few weeks would weigh further on the Australian dollar,” said Volkmar Baur, forex strategist at Commerzbank, recalling that two labour market reports and the inflation figures for the fourth quarter will be published before the next policy meeting in February.

The New Zealand dollar dropped in sympathy with the Aussie, declining 1.1% to USD 0.5801.

Investors will closely watch China’s closed-door Central Economic Work Conference this week, which sets key targets and policy intentions for next year.

The yuan was last at 7.2602 per dollar in offshore trading, supported by Monday’s surprise shift in Beijing’s monetary policy stance toward more easing to boost the ailing economy.

Elsewhere, the Bank of Canada and the Swiss National Bank decide policy on Wednesday and Thursday, respectively, with deep rate cuts expected from both.

Against Canada’s loonie, the US dollar rose to its strongest level since April 2020 at CUSD 1.4165.

(Reporting by Hannah Lang in New York; additional reporting by Stefano Rebaudo;
Editing by Rod Nickel and Matthew Lewis)

US high-yield credit set for best returns in eight years in 2024

A lower rung of US junk bonds is set to deliver its best returns in eight years in 2024, underscoring a significantly higher risk-return payoff for investors dabbling in speculative assets this year.

Returns on CC-rated debt, two rungs above D – meaning in default, have surged nearly 48% this year, a far cry from 83% in 2016 but nearly three times higher than last year, according to data from Morningstar Direct.

In comparison, investment-grade credit has generated returns between 3% and 5% this year, while other junk bond tiers have yielded returns between 7% and 15%.

Investment-grade bonds are generally perceived to be safer, but their lower risk and greater stability mean lower returns than often illiquid high-yield bonds.

This year’s outperformance by high-yield bonds has been driven by stronger corporate profitability and a soft economic landing that has kept default rates near historic lows and supported strong recovery rates, Bob Michele, global head of fixed income at JPMorgan Asset Management, said.

“It has been a very good year for credit,” Michele told the Reuters Global Markets Forum (GMF).

“Areas that stood out to us were the performance of bank debt, especially AT1, and the performance of high yield,” he added. AT1, or additional tier one bonds, are designed to act as shock absorbers that can be written off or converted into equity if a bank’s capital levels fall below a certain threshold, providing a cushion at times of market turmoil.

Despite record-tight spreads in corporate bond markets, asset managers remain bullish on US fixed income, bolstered by President-elect Donald Trump’s election victory and the Republicans’ control of the House and Senate, which are expected to reinforce pro-growth policies and further support risk assets.

“Spreads across risky assets are extremely tight and worth a second look for investors, but the favorable growth and labor market environment have continued to make it difficult for investors to step away,” Gennadiy Goldberg, US rates strategist at TD Securities, told the GMF.

The ICE BofA high-yield index, which tracks the performance of junk bonds .MERH0A0, has hit record highs above 1,736 this week and is heading for a rise of 9.7% in 2024.

(Reporting by Mehnaz Yasmin in Bengaluru. Editing by Amanda Cooper and Mark Potter)

Oil prices rise on China stimulus, possible tight supply in Europe

HOUSTON – Oil prices rose on Tuesday as markets looked to rising demand in China, the world’s largest buyer, and possible tight supply in Europe this coming winter and away from the overthrow of Syria’s president.

Brent crude futures settled at USD 72.19 a barrel, up 5 cents or 0.07%. US West Texas Intermediate finished at USD 68.59 a barrel, up 22 cents or 0.32%. Both benchmarks had risen more than 1% on Monday.

Support came from reports that China will adopt “appropriately loose” monetary policy in 2025 as Beijing tries to spur economic growth. This would be the first easing of its stance in 14 years, though details remain thin.

Chinese crude imports also grew annually for the first time in seven months, jumping in November from the year-earlier period.

The increase, however, “was more a function of stockpiling than demand improvement,” said Tamas Varga of oil broker PVM.

“The economy will only be stimulated by improving consumer sentiment and spending, by a rise in domestic aggregate demand echoed in a healthy increase in consumer inflation,” he added.

Speculation about winter demand was also a factor, said Phil Flynn, senior analyst with Price Futures Group.

“Hedge funds are starting to buy on tightness of supply in European markets this winter,” Flynn said.

In Syria, rebels were working to form a government and restore order after the ousting of President Bashar al-Assad, with the country’s banks and oil sector set to resume work on Tuesday.

“The tensions in the Middle East seem contained, which led market participants to price for potentially low risks of a wider regional spillover leading to significant oil supply disruption,” IG market strategist Yeap Jun Rong said.

While Syria itself is not a major oil producer, it is strategically located and has had strong ties with Russia and Iran.

Oil prices could receive a boost if the US Federal Reserve comes through with an expected quarter-percentage-point cut to interest rates at the end of its Dec. 17-18 meeting. That could juice oil demand in the world’s biggest economy, though traders are waiting to see if this week’s inflation data derails the cut.

(Reporting by Erwin Seba in Houston; Editing by Louise Heavens, David Goodman, Paul Simao, and Mark Porter)

US yields rise amid supply, before inflation data

NEW YORK – US Treasury yields rose on Tuesday as the Treasury sold USD 58 billion in three-year notes, the first of USD 119 billion in coupon-bearing sales this week, and as traders waited on key inflation data due later this week.

Tuesday’s three-year note auction saw solid demand at a high yield of 4.117%, only slightly above where it had traded before the sale. Demand was 2.58 times the amount of debt on offer.

It will be followed by an auction of USD 39 billion in 10-year notes on Wednesday and of USD 22 billion in 30-year bonds on Thursday.

Traders are waiting on consumer price inflation data on Wednesday and producer price inflation data on Thursday for any signs that inflation is picking up, which could derail the Federal Reserve’s expected interest rate cut next week.

“Those are the big numbers for the week,” said Tom di Galoma, head of fixed income trading at Curvature Securities. “I do think inflation is coming down… (but) inflation could certainly be a problem if it does push higher.”

Economists expect both headline and core consumer prices to have risen 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices are expected to show a 0.2% monthly increase in November, in both headline and core, for a 2.6% and 3.2% annual increase.

Markets are pricing in an 86% chance of a 25 basis point rate reduction next week, with a pause in January then seen as most likely.

Benchmark 10-year note yields were last up 2.5 basis points at 4.224%. Interest rate-sensitive two-year note yields rose 2.4 basis points to 4.151%.

The yield curve between two-year and 10-year notes was little changed on the day at 7 basis points.

Traders added to bets of a December rate cut after jobs data for November showed that the unemployment rate rose to 4.2%, from 4.1%, despite strong jobs gains during the month.

Data on Tuesday showed that US unit labor costs grew far less than initially thought in the third quarter, pointing to a still favorable inflation outlook, even though price increases have not moderated much in recent months.

Fed officials are in a blackout period before the Dec. 17-18 meeting.

(Reporting By Karen Brettell; Editing by Kevin Liffey and Chizu Nomiyama)

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