Dollar fluctuates amid looming inflation as next rate test

The yen hit a one-month high and the dollar held below recent peaks on Tuesday as traders waited for US and Chinese inflation data to determine the interest rate forecast, while momentum lifted bitcoin to a new record high.

Wednesday's data is expected to come out showing that US consumer prices rose sharply and Chinese factory prices rose sharply in October. But it also comes as commodity prices have fallen from their peaks and central banks have eased rumours that they will inevitably raise interest rates.

The strengthening of the yen, which rose about 0.4 per cent to 112.80 per dollar, and falling 20-year and 30-year US Treasury bond yields to seven-week lows suggested that investors were pricing in a rather modest upward cycle and slowing economic growth over the longer term.

The euro, which fell to a 15-month low of $1.15135 last week, strengthened 0.2 per cent to $1.1606.

The US dollar index fell 0.2% to 93.878, roughly in the middle of the range it held until October.

Fed futures pushed back the likely date for a rate hike from around July next year to September or October.

Analysts at Standard Chartered expect the Fed to raise rates slowly after its first hike in the third quarter of next year.

"We expect the Fed to emphasise the fact that the US economy is approaching its inflation and maximum employment targets, rather than expressing concern about raising inflation," strategists Steve Englander and John Davies said.

"The message is more likely to be a gradual rate hike rather than an abrupt move."

The Bank of England surprised investors last week by holding rates down, while the Reserve Bank of Australia and the Federal Reserve eased market expectations that they would raise rates aggressively.

Sterling, which fell last week due to the Bank of England surprise, continued its recovery to $1.3580 after falling to $1.3425 on Friday.

In contrast, the kiwi, which jumped on Monday, stabilised at $0.7164, prompting support from traders fearful of the possibility that the Reserve Bank of New Zealand could raise rates by as much as 50 basis points (bps) later this month.

"If the RBNZ intends to raise rates by 50 basis points, now is the time," ANZ analysts said.

"This still seems inconsistent with the uncertain global backdrop and the cautious tone of other central banks. Nevertheless, until we know the outcome, markets will be factored in at risk."

The risk-sensitive Australian dollar retained much of its gains overnight and traded at $0.7422 on Tuesday.

Judging from data provided by เทรด Exness, bitcoin, which is sometimes seen as a hedge against inflation and rising rapidly on a wave of positive news, rose to a record $68,564 in Asian trade, pulling the ether to a record $4,800.

Ahead of the inflation data, several central bank governors are due to speak later on Tuesday, including European Central Bank President Christine Lagarde at 1pm GMT and Fed Chairman Jerome Powell at 2pm GMT.