Dollar at 104: Await US inflation data

Dollar Index stability at 104 amidst crucial US inflation anticipation

By Ahmed Azzam | @3zzamous | 12 December 2023

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  • Dollar holds steady at 104

  • Investors await pivotal US inflation data

  • Labor market resilience challenges rate-cut expectations

  • WTI crude rises toward $72

Dollar index at 104

In the midst of anticipation over a pivotal US inflation reading, the dollar index found stability around 104 on Tuesday, setting the stage for a critical moment that could shape the trajectory of interest rates. This event unfolds just ahead of the Federal Reserve's highly anticipated final policy decision for the year.

The focal point of attention is the impending release of US consumer inflation data later today, followed by producer inflation figures and the Federal Reserve's policy announcement on Wednesday. Market participants keenly await insights into the central bank's stance, with expectations that the Fed may challenge the prevailing sentiments of a potential rate cut.

Contrary to expectations, the labor market has exhibited resilience in the face of elevated interest rates, providing the Federal Reserve with a robust backdrop. This resilience, coupled with a gradual easing of inflationary pressures, may prompt the Fed to diverge from anticipated rate-cutting measures. A recent New York Fed survey further underscored this sentiment, revealing that US consumers anticipate a softening of inflation over the next 12 months, aligning with diminishing projections of increased gasoline and rental costs.

Beyond the US borders, global markets are also attuned to policy decisions emanating from other major central banks this week, notably the European Central Bank and the Bank of England Thursday. These decisions will undoubtedly influence the broader economic landscape and contribute to the nuanced dance of global currencies.

WTI Crude climbs to $72

Simultaneously, on the commodities front, WTI crude futures made strides toward $72 per barrel on Tuesday. This upward trajectory is driven by investor focus on the impending US inflation reading and keen interest rate decisions expected from major central banks later in the week. Despite this positive movement, oil prices remain in proximity to their lowest levels in over five months, grappling with uncertainties surrounding whether OPEC+ production cuts in the coming year will be sufficient to counterbalance burgeoning global supplies and waning demand.

Even as OPEC+ committed to cutting 2.2 million barrels per day for the first quarter of 2024, market apprehensions persist. Concerns center around the potential for output increases from non-OPEC countries, a factor that could contribute to an oversupply scenario. Investors are now turning their attention to the forthcoming monthly market reports from OPEC and the International Energy Agency (IEA) for additional insights and guidance.

Eyes on US inflation data

In the lead-up to the Federal Reserve's final meeting of the year, the latest inflation report assumes heightened significance, affording Jerome Powell and his colleagues the necessary space to deliberate on potential easing measures in the months ahead. Preliminary indications suggest that headline US consumer prices likely remained flat in November compared to October. Additionally, year-on-year Consumer Price Index (CPI) growth is expected to have moderated to 3.1% from the previous month's 3.2%. Core CPI, a critical metric, is anticipated to inch up to 0.3%, maintaining a steadfast position at 4%.