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Dollar steps back from seven-month high, sterling bounces back

19 Octubre 2016
Dollar steps back from seven-month high, sterling bounces back

The dollar stepped back from seven-month high against an index of currencies on Wednesday after USA consumer prices showed underlying inflation moderated slightly, prompting markets to trim bets on a December Federal Reserve rate hike.

The Australian sharemarket firmed again after soft USA inflation data soothed rate-rise fears, but forecast matching Chinese GDP growth had no impact on investors increasingly dubious over its accuracy.

The performance of stocks, crude oil futures and both the USD/CNY and USD/JPY will likely be influential on movements in the U.S. dollar in Asia, and as a outcome the Aussie. Earlier on Wednesday, the Aussie dollar rose to $0.7691 at one point, matching its high on October 4.

The Australian dollar hit a high of 76.91 U.S. cents in overnight trade on the back of improved risk sentiment and commodity price rises.

The dollar struggled to gain traction in the wake of US inflation data on Wednesday.

Fed fund futures 0#FF: imply around a 65 percent probability of the Federal Reserve raising interest rates by December, down from 70 percent ahead of the U.S. CPI data.

"There was a bit of correction on the dollar's broad strength".

The euro EUR= also slipped to $1.0980, just above Monday's 2 1/2-month low of $1.0964.

According to the recent round of economic data, the Chinese economy expanded at an annual rate of 6.7 percent and 1.8 percent through the three-month period of the third quarter (3Q), both in-line with their respective forecasts and matching the previous quarter's reading.

Goto added there was a slight upside risk to the common currency before the European Central Bank's policy meeting on Thursday.

Short-covering was triggered after a United Kingdom government lawyer said parliament would "very likely" have to ratify any deal to take Britain out of the European Union, and following stronger-than-expected inflation numbers.

The bank is widely expected to keep its policy unchanged with any decisions on the future of its asset purchase scheme expected to be deferred until December.

Investors generally assume British lawmakers as a whole are less in favour of a hard line on Brexit than Prime Minister Theresa May and the ministers she has put in charge of negotiations. "That has seen dollar/yen come under some pressure, but we expect some decent buying around the 103-103.50 yen level", said Yujiro Goto, currency strategist at Nomura.

But some traders are nervous the European Central Bank chief Mario Draghi could take a dovish stance to counter recent talk that the European Central Bank is considering tapering its asset purchases.

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