Dollar rises as investors look to next week’s inflation report; yen gains

(Recasts, adds new comment, U.S. data, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar gained on Friday as investors grew concerned about a U.S. inflation report next week that could show a number that is higher than markets forecast amid data showing expectations for a continued rise in prices over the next year.

The yen also rose across the board with Kazuo Ueda reportedly set to become the next Bank of Japan (BOJ) governor but pared gains after he said the central bank’s monetary policy was appropriate. The Japanese unit was on track for its first weekly gain versus the dollar after posting losses for three straight weeks.

As the data continued to show positive U.S. momentum, the dollar was on pace for its second weekly rise against a basket of six currencies, a run it has not seen since October.

The University of Michigan surveys on Friday showed a one-year inflation outlook of 4.2%, higher than the final number in January. The overall index of consumer sentiment came in at 66.4, up from 64.9 the prior month.

Federal Reserve Chair Jerome Powell has cited the Michigan survey’s inflation outlook as one of the indicators the U.S. central bank tracks.

Aside from the Michigan data, revisions showed that U.S. monthly consumer prices rose in December instead of falling as previously estimated, while data for the prior two months was also revised higher, according to the Bureau of Labor Statistics.

Mazen Issa, senior FX strategist at TD Securities said next week’s CPI report has been “put in the crosshairs because this morning we had indications that…inflation was on a stronger footing than initially perceived last year.”

“This is really challenging the idea that the Fed could cut rates and stronger data like payrolls, ISM (Institute for Supply Management) and continued tightness in labor markets are pushing the…higher-for-longer policy stance by the Fed…and that might what ends up happening. That puts the dollar back on the front foot.”

Data next Tuesday is likely to show that the U.S. consumer price index (CPI) climbing 0.4% month-on-month in January and the core CPI gaining 0.4% as well, according to a Reuters poll.

In afternoon trading, the dollar index, which measures the greenback against six other currencies, was up 0.4% at 103.55.

Boj’s top job

In Japan, the Nikkei had earlier reported the government would nominate academic Ueda to the BOJ’s top job, sending the yen surging as markets anticipated a possible earlier end to ultra-loose monetary policy.

But in comments streamed online by Nippon TV, Ueda said the central bank’s current easy monetary policy was appropriate and that it should continue, prompting some of the earlier yen strength to be reversed.

Japanese Prime Minister Fumio Kishida said the government is planning to present the BOJ governor nominee to parliament on Tuesday, but did not answer a question on whether Ueda would be put forward.

“It is truly up in the air if major hawkish changes are coming to the BOJ,” said Juan Perez, director of trading at Monex USA in Washington.

The dollar sank as low as 129.8 yen, a one-week trough, and was last slightly down at 131.435 yen.

The euro and sterling both fell more than 1% against the Japanese currency and were last down roughly 0.7% at 140.34 yen and down 0.5% at 158.60 yen, respectively.

The BOJ shocked markets in December when it raised the cap on 10-year government bond yields to 0.5% from 0.25%, doubling the band it would permit above or below its target of zero.

Since then, speculation has gathered pace that the BOJ could adjust or scrap its yield curve control policy, even though it refrained from any changes at its last meeting.

The pound was down 0.5% at $1.2056. Earlier in the session, Britain managed to avoid a technical recession, with the economy showing zero growth in the final three months of 2022.

The euro fell 0.6% to $1.0679 and was set for a second straight week of losses.

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Currency bid prices at 3:54PM (2054 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.5500 103.2000 +0.35% 0.058% +103.6800 +102.8900

Euro/Dollar $1.0679 $1.0739 -0.55% -0.33% +$1.0753 +$1.0666

Dollar/Yen 131.3850 131.5300 -0.09% +0.23% +131.8650 +129.8000

Euro/Yen 140.31 141.27 -0.68% +0.01% +141.4900 +139.5700

Dollar/Swiss 0.9237 0.9221 +0.20% -0.08% +0.9252 +0.9200

Sterling/Dollar $1.2055 $1.2119 -0.52% -0.31% +$1.2138 +$1.2047

Dollar/Canadian 1.3339 1.3455 -0.86% -1.55% +1.3472 +1.3339

Aussie/Dollar $0.6921 $0.6937 -0.22% +1.53% +$0.6960 +$0.6910

Euro/Swiss 0.9865 0.9902 -0.37% -0.30% +0.9906 +0.9864

Euro/Sterling 0.8856 0.8860 -0.05% +0.14% +0.8872 +0.8824

NZ $0.6308 $0.6327 -0.37% -0.72% +$0.6346 +$0.6299

Dollar/Dollar

Dollar/Norway 10.1280 10.1765 -0.28% +3.41% +10.2150 +10.1015

Euro/Norway 10.8309 10.9283 -0.89% +3.21% +10.9540 +10.8050

Dollar/Sweden 10.4605 10.3427 +0.59% +0.51% +10.4796 +10.3043

Euro/Sweden 11.1720 11.1063 +0.59% +0.19% +11.1855 +11.0620

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Samuel Indyk, Harry Robertson in London, and Ankur Banerjee in Singapore; Editing by Marguerita Choy and Jonathan Oatis)