Dollar soars ahead of Fed minutes, jobs data

By Peter Nurse

Investing.com - The U.S. dollar climbed strongly Tuesday ahead of the week's key economic data.

At 03:55 ET (08:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 1% to 104.345.

Tuesday's main economic release is the U.S. manufacturing PMI for December, which is expected to show the sector still in contraction territory.

However, most eyes will be on the Federal Reserve minutes on Wednesday and U.S. jobs data later in the week to set the early thinking on interest rates in the new year.

The Fed raised interest rates by 50 basis points last month, a reduction in size after delivering four consecutive 75 basis point hikes, but has said it may need to keep interest rates higher for longer to tame inflation.

USD/JPY fell 0.1% to 130.69, with the yen handing back gains after climbing to a seven-month high against the dollar following the Bank of Japan's decision last month to raise its bond-yield cap.

Adding to the expectations that the Japanese central bank was reconsidering its current monetary stance was a Nikkei report, released over the weekend, that said the BOJ was considering raising its inflation forecasts in January.

Governor Haruhiko Kuroda has dismissed the chance of a near-term exit from the ultra-loose monetary policy, but the central bank was forced to support the yen late last year as it weakened to a 32-year low against the dollar as the U.S. Federal Reserve aggressively tightened to combat inflation.

Elsewhere, EUR/USD fell 0.9% to 1.0566, ahead of the release of key German inflation data, which is expected to show a reduction in annual inflation to 9.1% in December, from 10.0% the prior month.

The state of North Rhine-Westphalia - Germany's largest by population and economic output - said annual inflation slowed to 8.7% in December from 10.4% in November and a peak of 11% in October.

However, food prices - the largest part of many families' monthly outgoings - rose another 0.5%, leaving them up 13.8% on the year. More worryingly, the overall CPI without volatile food and energy prices rose 1.0%, pushing the annual 'core' measure of inflation up to 4.9% from 4.6%.

GBP/USD fell 0.8% to 1.1951, ahead of the release of the manufacturing PMI release for December, which is expected to show this important sector remains in contraction territory.

The risk-sensitive AUD/USD fell 1.2% to 0.6723, while USD/CNY edged 0.1% higher to 6.9045 after data from a private survey, released earlier Tuesday, confirmed Chinese manufacturing activity shrank for a fifth straight month in December, with the Caixin Manufacturing Purchasing Managers Index coming in at 49.0.

This represents a drop from last month's reading of 49.4, and the fifth straight month that the manufacturing PMI has spent in contraction territory.