FOREX Dollar, euro rangebound ahead of U.S. inflation report

NEW YORK, Jan 11 (Reuters) – The dollar was little changed on Wednesday versus the euro and other major currencies as traders held off from making big moves ahead of U.S. inflation data on Thursday, which may offer a clearer picture of where interest rates are headed.

The euro hovered near a seven-month high against the greenback, hit on Monday, as traders bet that the U.S. Federal Reserve will not have to raise rates as fast and as high as earlier thought to tame stubbornly high inflation.

The euro was up 0.3% at $1.07675 against the dollar at 10:00 a.m. EST (1500 GMT).

While the euro has benefited from improved growth prospects in the euro zone, the lack of inflows to the common currency may be due to ongoing risks tied to natural gas supply constraints, said Isabella Rosenberg, an analyst at Goldman Sachs.

Natural gas prices have fallen to their lowest in almost a year-and-a-half amid a mild winter and healthy inventory levels. But risks persist from Russia’s war in Ukraine, which disrupted supplies last year.

“Unless the global growth backdrop continues to improve more materially, we expect dollar downside to remain constrained,” Rosenberg said.

The World Bank on Tuesday slashed its 2023 growth forecasts to levels teetering on the brink of recession for many countries as the impact of central bank rate hikes intensifies, the Ukraine war continues, and the world’s major economic engines sputter.

The dollar has lost almost 12% against euro since hitting a 20-year peak in September, as data continues to show that the Fed’s rate hikes are having their intended affect of slowing the economy and inflation with it.

The dollar index , which measures the greenback against a basket of currencies, including the euro, dipped 0.068% to 103.18.

Fed Chair Jerome Powell did not give any policy clues during a panel discussion in Stockholm on Tuesday, and with other Fed officials saying their next moves will be data-dependent, investors are keenly focused on U.S. CPI data due on Thursday.

Futures pricing has been bumpy, but indicates markets’ now lean toward a 3/4 chance of a quarter-point hike next month.

China’s re-opening has also supported sentiment and lifted Asia’s currencies against the dollar.

China’s yuan was a whisker short of a five-month high at 6.7779.

The Australian dollar edged up 0.04% to $0.6896 after data showed the annual pace of inflation increased to 7.3% in November, leaving room for more rate hikes.

“Australia reported higher than expected CPI data that belies the narrative that the inflation battle has been won quickly and relatively painlessly,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.

Reporting by John McCrank in New York; Additional reporting by Joice Alves in London; Editing by Tomasz Janowski, Jane Merriman and Toby Chopra

Our Standards: The Thomson Reuters Trust Principles.