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Dollar gains as inflationary pressures persist; eyes on meetings

SINGAPORE, Dec 12 (Reuters) – The dollar climbed on Monday after data on Friday showed U.S. producer prices had risen more than expected last month, pointing to persistent inflationary pressures and a chance the Federal Reserve will keep interest rates higher for longer.

The dollar rose 0.35% against the Japanese yen to 1[ads1]37.05. Against a basket of currencies, the US dollar index gained 0.12% to 105.18.

The euro was last 0.2% lower at $1.0509.

Sterling fell 0.31% to $1.2229 in Asian trade on Monday, while the Aussie was down 0.34% to $0.6773.

The kiwi similarly fell 0.34% to $0.6393.

The U.S. producer price index for final demand in November was up 0.3% from last month and 7.4% from a year earlier, data released on Friday showed, a slight upside surprise from forecasts of 0.2% and 7.2% increases, respectively .

“There was a slight concern about how inflation would be persistently high and would encourage the Fed to keep policy at a restrictive level even longer than previously expected,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (CBA).

Traders were also kept on edge ahead of key risk events this week, including US inflation data and a series of major central bank meetings.

The Federal Reserve is again at center stage, and is widely expected to raise interest rates by 50 basis points, although the focus will be on the central bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.

“If he talks more about the risks to the economy … I think that will probably be viewed as dovish by the 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 each is also expected to deliver a 50bp rate hike.

“ECB officials have told us they care more about underlying inflation, which has remained high,” Kong said of the upcoming ECB meeting.

“If they increase by 50 bps … they could follow up with some pretty hawkish comments at Lagarde’s post-meeting conference.”

Ahead of the FOMC meeting, November’s US inflation figures are due on Tuesday, with economists expecting annual core inflation of 6.1%.

“The market reaction to US inflation surprises has been asymmetric so far in 2022, with downside surprises having a greater impact than upside surprises,” analysts at Barclays said.

“Inflationary pressures are likely to be the bigger driver of the two, (given) the Fed’s guidance towards smaller increases,” they added, citing influences on the US dollar. The offshore yuan fell slightly to 6.9798 per dollar, further pressured by concerns over a potential spike in COVID cases as China eases its strict COVID-19 restrictions.

Reporting by Rae Wee; Editing by Lincoln Feast and Bradley Perrett

Our standards: Thomson Reuters Trust Principles.

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