Dollar pares losses after data shows some inflation remains sticky

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By Karen Brettell

NEW YORK (Reuters) -The dollar pared losses against the euro and yen on Tuesday after data showed that some underlying measures of inflation remained relatively elevated in November even as price gains came in broadly as expected.

Headline inflation edged up 0.1% last month after being unchanged in October. In the 12 months through November, the CPI increased 3.1% after rising 3.2% in October. Economists polled by Reuters had forecast CPI would be unchanged on the month and gain 3.1% on a year-on-year basis.

Excluding the volatile food and energy components, the CPI increased 0.3% in November after climbing 0.2% in the prior month. But so-called supercore inflation, which tracks the cost of services minus energy and housing, rose 0.44% in the month up from 0.22% in October.

“Once we dig into the data we can see that some of the underlying numbers are perhaps a little sticky, particularly the supercore numbers,” said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.

“Generally we’ve seen sufficient progress on inflation to keep a rate cut as the next move, but it’s really about the timing at this point and these numbers suggest that we still need to see some further progress on some of these underlying measures before the Fed will be comfortable cutting interest rates,” Osborne added.

Traders pushed back expectations on when the Federal Reserve is likely to begin cutting interest rates to May, from March, after data on Friday showed that employers added more jobs than expected in November.

Fed officials are due to release their updated economic and interest rate projections at the conclusion of the U.S. central bank’s two-day meeting on Wednesday. Fed Chairman Jerome Powell may also push back against expectations for a rate cut in the first half of 2024.

The greenback had dropped before the data as traders positioned for a dovish number.

The dollar was last down 0.09% on the day against a basket of currencies at 103.95. It got as low as 103.48 immediately after the data, before bouncing.

The euro was last up 0.13% at $1.0779. It was around $1.0809 before the data. The greenback was last down 0.41% at 145.59 Japanese yen, after earlier getting as low as 144.75.

The yen has been volatile on speculation that the Bank of Japan may be closer to ending its negative rate policy. Hopes that this may occur as soon as next week were dashed after Bloomberg reported on Monday that BOJ officials see little need to rush as they have not seen enough evidence of wage growth to justify sustainable inflation.

Later this week the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet, with Norway considered the only which could potentially raise rates. There is also a risk the SNB could dial back its support for the franc in FX markets.

In cryptocurrencies, Bitcoin gained 0.25% to $41,323.

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Currency bid prices at 10:20AM (1520 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.9500 104.0600 -0.09% 0.444% +104.0900 +103.4800

Euro/Dollar $1.0779 $1.0765 +0.13% +0.60% +$1.0830 +$1.0762

Dollar/Yen 145.5900 146.1950 -0.41% +11.05% +146.1850 +144.7450

Euro/Yen 156.93 157.31 -0.24% +11.85% +157.3400 +156.5100

Dollar/Swiss 0.8768 0.8787 -0.17% -5.13% +0.8785 +0.8724

Sterling/Dollar $1.2540 $1.2555 -0.10% +3.71% +$1.2615 +$1.2516