October 16, 2015 / 12:12 AM / 4 years ago

Dollar gains as December Fed rate hike still seen possible

LONDON (Reuters) - The dollar pulled away from a seven-week low on Friday after better-than-expected U.S. inflation data and on growing expectations of more euro zone easing, but the greenback was still set for its worst run of weekly losses since June.

United States one dollar bills are put in packaging bands during production at the Bureau of Engraving and Printing in Washington November 14, 2014. REUTERS/Gary Cameron

European Central Bank policymaker Ewald Nowotny raised expectations for further euro zone easing on Thursday, saying it was "obvious" that additional instruments were necessary to spur price growth in the euro zone, driving the euro down 0.7 percent on the day against the dollar EUR=

Nowotny’s comments were followed by upbeat U.S. inflation numbers, which showed a surprise 0.2 percent rise in the September core consumer price index that strips out food and energy costs, boosting the year-on-year gain to 1.9 percent.

The dollar has suffered as a run of weak data and global growth worries have pushed expectations for the first interest rate hike from the U.S. Federal Reserve since 2006 to the middle of next year. The greenback hit 93.806 against a basket of major currencies on Thursday, its weakest since late August .DXY.

But with inflation data reviving bets that a rate hike might still come before the end of the year, the dollar climbed, trading 0.2 percent up on Friday at 94.536.

“The inflation data were quite promising, in particular the core rate,” said Commerzbank currency strategist Esther Reichelt in Frankfurt. “There is definitely still the possibility at least for a lift-off (in December).”

“Whether they’ll actually be able to commit to a specific pace of rate hikes afterwards, which is the most important for the U.S. dollar, is a different question.”

The euro was 0.2 percent down at $1.13715 EUR=, with a speech later in the day from ECB Executive Board member Benoit Coeure under close scrutiny for further clues on what to expect at next week's ECB meeting.

Reichelt said she did not expect the ECB to announce further measures as soon as next week, but that the market would be watching ECB chief Mario Draghi for signals that he would be willing to act should disinflationary pressures persist.

“Nowotny’s comments hit the euro just as it was beginning to firm, and the currency could weighed down if other ECB officials hint at the need for further easing,” said Masafumi Yamamoto, a senior strategist at Monex in Tokyo.

Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Richard Balmforth

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