Dollar firm after US inflation report, yuan flat despite weak China prices data

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By Brigid Riley

TOKYO (Reuters) – The dollar held firm on Friday after stronger-than-expected U.S. consumer inflation revived prospects that the Federal Reserve will have to keep rates higher for longer.

At the same time, investors digested producer and consumer prices data out of China that showed deflationary pressures were slightly stronger than expected.

“What we’ve got is a fairly weak growth story (from China), and that’s weighing on the price numbers,” according to Rob Carnell, head of research at ING, who said that could put more pressure on the government to further support the economy.

Bloomberg News reported earlier in the week that China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the official growth target.

“But I would hasten to say, I don’t think we’re expecting anything big” as far as stimulus, Carnell added.

China’s exports for September shrank by 6.2% from a year earlier, while imports also declined by 6.2%, customs data showed on Friday, both contracting at a slower pace and adding to recent evidence that the world’s second-biggest economy is stabilising.

The offshore was mostly flat versus the greenback at $7.3081.

The Australian dollar, which often trades as a proxy for China growth, was 0.2% stronger at $0.6327.

The eased about 0.1% to $0.592.

U.S. consumer prices were pushed higher by a jump in rental costs in September, data showed on Thursday. Although a steady moderation in underlying inflation pressures supported expectations that the Fed would not hike interest rates next month, the data did raise the chance of rates staying elevated for some time.

“CPI data for September reveal further challenges with the ‘last mile’ in pushing inflation persistently back towards the 2% target,” said David Doyle, Macquarie head of economics, in a note.

The , which measures the U.S. currency against six of its major peers, ticked down slightly to 106.42 in the Asian morning, but held near Thursday’s high of 106.60.

The boost to the greenback overnight saw the yen sliding back toward the sensitive 150-line briefly touched last week.

The exchange rate was sat at 149.80 yen per dollar, with traders on guard for potential intervention by Japanese authorities to support their currency should it weaken further.

Wei Liang Chang, foreign exchange and credit strategist at DBS, said: “dollar/yen remains restrained below 150 amid concerns that the authorities could lean against excessive JPY weakness.”

Elsewhere, the euro ticked up over 0.1% to $1.05445 after taking a tumble overnight against the dollar.

Sterling was last trading at $1.2205.

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