By Samuel Indyk and Brigid Riley
LONDON (Reuters) – The U.S. dollar edged lower on Friday after its biggest daily increase since March the day before, as hot U.S. consumer prices data revived prospects that the Federal Reserve may have to raise rates further to get inflation back towards its 2% target.
The consumer price index (CPI) increased 0.4% in September, keeping the annual rate at 3.7%, the same as in August. Economists polled by Reuters had forecast the CPI would gain 0.3% on the month and 3.6% year-on-year.
“The data will keep the Fed on its toes,” said Nicholas Van Ness, U.S. economist at Credit Agricole (OTC:) CIB.
“While our base case remains an extended pause that lasts into 2024, further upside surprises in upcoming CPI and employment reports could leave a hike on the table for December (or after),” Van Ness added.
The , which measures the U.S. currency against six of its major peers, ticked down around 0.1% to 106.36. On Thursday it rose 0.8% to 106.6, its biggest one-day jump since March 15.
The boost to the greenback on Thursday saw the yen sliding back toward the sensitive 150-line briefly touched last week before strengthening sharply, which led some to believe authorities were intervening in the currency market.
The Japanese currency was last at 149.69 per dollar, keeping traders on guard should the currency weaken further.
“The risk of intervention is clearly high and that is constraining dollar-yen which would otherwise be higher,” said Adam Cole, chief currency strategist at RBC.
“This resolves itself in one of two ways; either they intervene and dollar-yen dips and resumes trading up from a lower level, or it sticks in a range for a while and the probability of intervention slowly diminishes.”
The euro ticked up 0.2% to $1.0547, while sterling was last trading 0.3% higher at $1.2213.
Sweden’s crown edged up against both the dollar and euro after consumer price data came in higher-than-forecast, adding to risks that the Riksbank could raise rates further.
“These data reinforce the case for one more rate hike – especially as activity data such as the monthly GDP indicator have also held up relatively well in the past couple of months,” Capital Economics chief Europe economist Andrew Kenningham said.
Investors also digested producer and consumer prices data out of China on Friday that showed deflationary pressures were slightly stronger than expected.
China’s trade data for September, meanwhile, showed exports and imports both shrank at a slower pace for a second month, providing some encouragement to authorities concerned about slowing growth.
The offshore stayed mostly flat at 7.3075 per dollar following the data.
The Australian dollar, which often trades as a proxy for Chinese growth, last sat at $0.6324. The New Zealand dollar eased 0.1% to $0.5920.
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