SINGAPORE – The dollar firmed on Monday after data showed producer prices in the United States rose more than expected last month, pointing to persistent inflationary pressures and stoking fears the Federal Reserve would need to keep rates higher for longer.
The US producer price index for final demand rose 0.3 percent in November and 7.4 percent year-on-year, data released on Friday showed, a slight upside surprise from forecasts of a 0.2 percent and 7.2 percent increase, respectively.
Sterling fell 0.27 percent to $1.22335 in early Asia trade, while the Aussie edged 0.34 percent lower to $0.6773.
The kiwi -+slipped 0.37 percent to $0.6391.
“There were a little bit of concern about how inflation would be persistently high and would encourage the Fed to keep policy at a restrictive level for even longer than previously expected,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
Traders were also kept on edge in the run up to key risk events this week, including a slew of major central bank meetings.
The Federal Reserve once again takes center stage, and is widely expected to raise rates by 50 basis points, though focus would be on the central bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.
“If he does talk more about the risks to the economy … I think that will probably be considered dovish by markets and of course, markets love dovish comments and how the FOMC will pay more attention to downside risks to the economy,” said CBA’s Kong.
The Bank of England and the European Central Bank (ECB) also meet this week, and are likewise expected to each deliver a 50 bp rate hike.
“ECB officials have been telling us that they care more about the underlying inflation, which has remained elevated,” said Kong of the upcoming ECB meeting.
