Dollar edges down against yen after uptick in US inflation

The US dollar edged lower against the yen on Thursday (Oct 10) after data showed a higher-than-expected rise in US inflation in September even though prices were on a downward trend, allowing the Federal Reserve to keep cutting interest rates.

Labor Department data on Thursday showed that the consumer price index increased 0.2 per cent in September. In the 12 months until September the CPI climbed 2.4 per cent, which was the smallest year-on-year rise since February 2021.

The greenback was down 0.54 per cent at 148.50 yen, after rising to as high as 149.58 yen for the first time since Aug 2.

The dollar index, which measures the currency against six key rivals including the yen and euro, was down 0.09 per cent to 102.780 after hitting its highest since August 16.

Minutes from the Fed’s latest meeting, released overnight, confirmed the central bank’s focus on keeping the labour market healthy.

“The argument for a more gradualist approach is now definitely the central position,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

“The market’s momentum is towards reconsidering how much the Fed will really cut in the coming months. I think that momentum can build, because the US data flow has been relatively good recently.”

San Francisco Fed President Mary Daly said late on Wednesday that she was less concerned now about resurgent inflation than about hurting the labour market.

Traders lay 85 per cent odds on the Fed cutting rates by 25 basis points at its next policy decision on Nov 7, and a 15 per cent probability of no change, the CME Group’s FedWatch Tool showed.

A week earlier, markets saw a cut as certain, with 35 per cent odds on another half-point reduction.

The risk-sensitive Australian dollar was up 0.1 per cent to US$0.6724. It earlier rose more than 0.3 per cent on the back of an equity rally in top trading partner China as the East Asian nation’s central bank launched a swap programme aimed at supporting the stock market.

China’s finance ministry is due to hold a highly anticipated news conference on fiscal policy on Saturday.

The Aussie dropped to its weakest since Sep 16 at US$0.6708 on Wednesday, after a stimulus announcement by China’s state planner fell flat.

RBC’s Tan said he expects China to announce fiscal stimulus on Saturday that should be “enough to create a floor for China’s economy”.

He said the stimulus is likely to support China’s yuan, which has fallen in recent days, and boost other Asian currencies such as the Singapore dollar and the Indonesian rupiah. REUTERS