Dollar holds steady on strong US inflation report, yuan stable amid mixed China data

The dollar maintained its strength on Friday following a robust U.S. consumer inflation report, rekindling expectations that the Federal Reserve may keep interest rates elevated for an extended period.

In contrast, the yuan, along with the Australian and New Zealand dollars, held their ground despite mixed consumer and producer price data from China. The trade numbers, which showed a slower decline, offered a glimmer of hope for stabilization.

The dollar found support in Thursday’s data, revealing that rental costs surged in September, driving up U.S. consumer prices. Although a steady moderation in underlying inflation provided some assurance that the Fed might not raise rates next month, it increased the likelihood of prolonged elevated rates.

David Doyle, Macquarie’s head of economics, commented, “CPI data for September reveal further challenges with the ‘last mile’ in pushing inflation persistently back towards the (Fed’s) 2% target.”

The dollar index, gauging the U.S. currency against six major peers, edged down slightly to 106.38 in Asian trading, just off Thursday’s peak of 106.6.

The yen retreated towards the sensitive 150-line briefly touched last week.

The exchange rate stood at 149.62 yen per dollar, with traders monitoring for potential intervention by Japanese authorities to bolster their currency if it weakens further.

The euro gained nearly 0.2% to $1.0549 after a dip against the dollar, while sterling was up over 0.2% at $1.2202.

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Investors also absorbed producer and consumer price data from China, which showed slightly stronger deflationary pressures than expected.

Earlier in the week, Bloomberg News reported that China is contemplating an increase in its budget deficit for 2023 as the government gears up to implement a new round of stimulus to help meet the official growth target.

China’s trade data for September revealed that exports and imports both contracted at a slower pace for a second consecutive month, providing some encouragement for authorities.

The offshore Chinese yuan remained relatively stable against the greenback at $7.3061 following the data.

The Australian dollar, often viewed as a proxy for Chinese growth, was last quoted at $0.6317.

The kiwi dipped 0.2% to $0.5915.