FOREX-Dollar trades solidly in calm before CPI storm

BY Reuters | ECONOMIC | 08/09/22 08:17 PM EDT
       By Tom Westbrook
    SINGAPORE, Aug 10 (Reuters) - The dollar traded firmly on
Wednesday in anticipation of U.S. inflation data, which even if
it comes in softer-than-expected is still likely to be so red
hot that steep U.S. interest rate rises will be required to rein
it in.
    The figures are due at 1230 GMT. Economists expect
year-on-year headline inflation running at a
scorching 8.7%, a small retreat from June's whopping 9.1%
figure. Core inflation is expected at 0.5% month-on-month
.
    Currency market moves have been slight in the lead up and
for previous releases, reactions have been more muted than in
the volatile bond market. The greenback was broadly steady
overnight, though has paused a bit of a retreat that began in
the middle of July.
    It bought 135.14 Japanese yen and sat at $1.0208
per euro. The Australian and New Zealand dollars eased
slightly, with the Aussie last at $0.6958 - just above
its 50-day moving average. The kiwi bought $0.6284.
    Traders expect reaction to turn on the core inflation
figure.
    "The market will initially get more excited by a downside
core CPI surprise than an upside surprise," said Deutsche Bank
strategist Alan Ruskin, feeding in to hopes that falling
commodity prices mean inflation can quickly recede.
    "It will also play to the market's recent proclivity to buy
risk dips, and will be a broad-based negative for the U.S.
dollar," he said.
    "An upside core CPI surprise will fit with the pattern of
the last three releases...the purist long dollar trade in this
instance is versus the yen," he said, adding dollar/yen could
likely to rise into a 135-139 per dollar range.
    A quick reading on policymakers' reaction may come from Fed
officials Charles Evans and Neel Kashkari who are due to make
speeches at 1500 GMT and 1800 GMT, though they will have another
set of price data in August before September's policy meeting.
    "A one-off sharp drop in CPI at this point should not mean
that much to the Fed," said NatWest Markets' rates strategist
Jan Nevruzi.
    "They need to see at minimum a consistent multi-month trend
to turn around, while acceleration in inflation means that a lot
more has to be done on the tightening front."
    Chinese inflation data is also due on Wednesday, though is
expected to show it firmly under control. The yuan
has faced some pressure from rising Sino-U.S. tensions and a
widening property and banking crisis in China.
    In offshore trade, the yuan was steady at 6.7550
per dollar.
    Bitcoin, rattled by a drumbeat of cryptocurrency
fund wipeouts and thefts over recent months, fell sharply on
Tuesday and was at $23,070 on Wednesday.
    In emerging markets, the Bank of Thailand is expected to
lift interest rates from record lows and the baht hung
on to recent gains.

    ========================================================
    Currency bid prices at 0008 GMT
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change
                                              Session
 Euro/Dollar                  $1.0205        $1.0213     -0.08%         -10.23%     +1.0215     +1.0205
 Dollar/Yen                   135.1150       135.1250    +0.00%         +0.00%      +135.2300   +0.0000
 Euro/Yen         Dollar/Swiss                 0.9540         0.9537      +0.05%         +4.60%      +0.9543     +0.9538
 Sterling/Dollar              1.2072         1.2075      -0.01%         -10.72%     +1.2091     +1.2073
 Dollar/Canadian              1.2888         1.2883      +0.02%         +1.92%      +1.2890     +1.2884
 Aussie/Dollar                0.6950         0.6962      -0.19%         -4.40%      +0.6966     +0.6949
 NZ                           0.6280         0.6288      -0.04%         -8.17%      +0.6288     +0.6284
 Dollar/Dollar


All spots
Tokyo spots
Europe spots
Volatilities
Tokyo Forex market info from BOJ


 (Reporting by Tom Westbrook; Editing by Lincoln Feast.)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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