Currencies: Dollar wobbles in mixed trade ahead of inflation snapshot

The U.S. dollar traded mixed against major rivals on Thursday, with the leading index a touch higher, ahead of inflation data that could bolster market expectations for a gradual tightening of U.S. interest rates.

The pricing reports, wholesale inflation due out Thursday and a consumer snapshot on Friday, follow the Wednesday release of minutes from the latest Federal Reserve meeting. They showed consensus gelling around one more rate increase this year, a view that is tempered by concerns about sluggish inflation.

The greenback recovered somewhat against its closest neighbors, having lost ground earlier this week against the Canadian dollar and the Mexican peso amid the resumption of what’s expected to be a difficult renegotiation of the North American Free Trade Agreement.

See: Mexican peso holds near 5-month low amid uncertainty over Nafta

Where are currencies trading?

The ICE U.S. dollar index DXY, +0.14%  was up less than 0.1% at 93.049, trying to snap what had been a string of four-straight declines. The WSJ Dollar index BUXX, +0.04% which measures the buck against a wider range of currencies, was just in positive territory, at 86.44.

The euro EURUSD, -0.0422%  rose to $1.1861 from $1.1859 late Wednesday in New York, clinging to gains logged earlier this week after fears of a Catalonia secession from Spain eased. The euro is trading at its highest level in about three weeks.

The pound GBPUSD, -0.7336%  eased to $1.3144 from $1.3223 on Wednesday.

The dollar slipped against its Japanese counterpart USDJPY, -0.22%  with the dollar buying ¥112.26, compared with ¥112.49 late Wednesday.

Against the Swiss franc USDCHF, +0.0925% the buck stood at 0.9741 franc, up from 0.9734 franc late Wednesday in New York.

Against the Mexican peso USDMXN, +0.2085% the dollar gained to 18.7339 pesos, compared with 18.7091 late Wednesday. The buck also gained against the Canadian dollar USDCAD, +0.1043% last buying C$1.2474 versus C$1.2458.

What’s driving the market?

Markets continued to assess the Federal Open Market Committee’s meeting notes out Wednesday, which showed that the low inflation environment continues to weigh on central bank officials’ minds. Some added that patience was warranted in raising rates to keep an eye on inflation numbers, while others contended that delaying hikes could lead to asset bubbles.

As for European currency markets, traders continued to measure the lack of progress in Brexit talks ahead of a key summit of European leaders next week.

The buzz around Brexit negotiations continued after British finance minister Philip Hammond declared on Wednesday the value of a transitional deal would decline rapidly if were to drag into next year, but said it was too soon to spend money on contingency plans, Reuters reported.

Markets are more focused on the strong British data this week and broad expectations of Bank of England interest-rate hikes baked into currency pricing, in fact up to 50 basis points worth of hikes over the next year, analysts said.

Meanwhile, on Wednesday, President Trump, speaking alongside Canadian Prime Minister Justin Trudeau, opened the door to separate trade deals with Canada and Mexico to replace the North American Free Trade Agreement and repeated his warnings that the U.S. could withdraw from the pact. The talks continue.

What are analysts saying?

The dollar “may be suffering from doubts about whether the Republicans can pass a tax reform bill, which seems increasingly unlikely,” said Marshall Gittler, chief strategist with ACLS Global, in a note.

And as for economic data, “with the employment situation unclear in the wake of the hurricanes, the various inflation gauges have become more important than ever as a way of determining what the Fed is likely to do,” said Gittler.

U.S. data and Fed speakers on tap

Readings on weekly jobless claims and a producer price index are slated to arrive at 8:30 a.m. Eastern Time.

Economists polled by MarketWatch forecast 250,000 claims and a 0.4% rise in producer prices for September. Consumer price data is due for release on Friday.

Check out: MarketWatch’s Economic Calendar

On the Federal Reserve front, Fed Gov. Jerome Powell is due to give a speech about emerging-market economies at 10:30 a.m. Eastern Time in Washington, D.C.

Fed Gov. Lael Brainard, European Central Bank President Mario Draghi and former Fed chief Ben Bernanke are expected to take part in a panel discussion about monetary policy at 10:30 a.m. Eastern in Washington.

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