Dollar gains as inflation pressures persist, eyes on central bank meetings
The dollar climbed on Monday after data on Friday showed U.S. producer prices had risen more than expected last month, pointing to persistent inflationary pressures and a chance the Federal Reserve would keep interest rates higher for longer.
The dollar rose 0.35% against the Japanese yen to 137.05. Against a basket of currencies, the U.S. dollar index eked out a 0.12% gain at 105.18.
The U.S. producer price index for final demand in November was up 0.3% from the previous month and 7.4% from a year earlier, data released on Friday showed, a slight upside surprise from forecasts of a 0.2% and 7.2% increase, respectively.
“There was a little bit of concerns about how inflation would be persistently high and would encourage the Fed to keep policy at a restrictive level for even longer than previously expected,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
Asian stocks drop on Fed fears, China optimism wanes
Most Asian stock markets retreated on Monday as investors pivoted out of risk-heavy assets ahead of more signals on U.S. monetary policy this week, while rising COVID-19 cases in China dampened optimism over an economic reopening in the country.
Chinese and Hong Kong stocks were the biggest decliners on the day as markets feared that the relaxing of anti-COVID measures in China will result in much higher infection rates. China is already struggling with a record-high increase in daily infections.
This largely offset optimism over a potential economic recovery in the country, with the withdrawal of COVID curbs.
The Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell 0.8% and 0.6%, respectively, while Hong Kong’s Hang Seng index slumped nearly 2%. Analysts also forecast high volatility in Chinese markets as the country relaxes anti-COVID measures.
Japan’s Nikkei 225 index fell 0.2% after data showed producer price inflation in the country remained pinned near 40-year highs in November.
Oil rises on Keystone uncertainty, but Fed jitters limit gains
Oil prices rose slightly on Monday as a delay in the resumption of a key Canada-U.S. oil pipeline pointed to some tightening in supply, although caution ahead of a Federal Reserve meeting and key inflation data due this week limited gains.
Brent oil futures, the global crude benchmark, rose 0.1% to $76.18 a barrel, while West Texas Intermediate (WTI) crude futures, the U.S. benchmark, rose 0.4% to $71.31 a barrel by 21:38 ET (02:38 GMT). The two contracts logged sharp losses in the prior week.
Both contracts remained pinned near their weakest levels in a year, as the near-term outlook for crude demand was decimated by the prospect of high inflation, slowing economic growth, and rising interest rates.
Oil futures took some support on Monday from the prospect of tightening U.S. supplies, especially as Canada’s TC Energy (NYSE:TRP), which operates the Keystone pipeline, said it will not give a timeline for when the pipeline will resume operation after a leak last week.
The pipeline is a key source of crude supplies from Canada to the U.S. Midwest and Gulf Coast.
Uncertainty over Russian supply also benefited crude prices, after Moscow threatened to cut production in response to U.S. and European price caps on the country’s oil shipments. But analysts said that the price caps, which were much higher than expected, will have a limited impact on crude markets.
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