LONDON, Dec 13 – The dollar was stable on Tuesday ahead of the release of U.S. inflation data and the Federal Reserve’s final meeting of the year, as investors await an update on the outlook for Interest rates.
* A month ago, a small surprise to the downside triggered a wave of bond purchases and dollar sales on expectations that inflation had peaked. The figures, due to be released at 1330 GMT, will test that hypothesis, while the Fed’s decision on Wednesday should provide a reasonably immediate reaction from policymakers.
* Economists polled by Reuters expect core inflation for November to hold at 0.3% m/m but see a moderation in the annual pace, up 7.3% from a year earlier.
* As of 0937 GMT, the dollar index was stable at 104.99, after reaching a 20-year high of 114.78 in late September.
* The largest daily drop in the dollar index and the second largest daily rise in 2022 have occurred on days when the US CPI has been released.
* The dollar has been supported by high and rising interest rate expectations as the Federal Reserve has raised its benchmark rate to offset inflation, leaving the currency vulnerable to selling if inflation appears to cool .
* Market forecasts for a rise in US interest rates have also declined with futures indicating that the Fed funds rate – currently set at 3.75% to 4% – will remain below of 5%.
* The Fed is expected to raise interest rates by 50 basis points (bp) on Wednesday, a slowdown after four consecutive 75bp hikes.
* The pound was stable against the dollar at $1.2272, pending the Bank of England’s decision on Thursday. Last week it hit a nearly six-month high of $1.2345.
* The euro, for its part, remained stable at 1.0539 dollars, while the Swiss franc was trading at 0.9373 units per dollar, pending Thursday’s meetings of the European Central Bank and the Swiss National Bank.
* Like the Federal Reserve and the Bank of England, both are expected to raise rates by 50 basis points.