Dollar nears two-month peak as Fed easing bets fall ahead of inflation data Reuters

By Kevin Buckland

TOKYO (Reuters) – The U.S. dollar traded near a two-month high against major peers on Thursday as markets grew more confident about the Federal Reserve’s patient approach to further monetary easing, even as a key inflation report from appeared later in the day.

which measures the currency against six key rivals, was flat after climbing to its highest since Aug. 16 overnight as traders further trimmed bets on a U.S. interest rate cut this year following unexpectedly strong data from last week regarding wages.

September’s consumer price index (CPI), due at 12:30 GMT, will likely show core inflation holding steady at 3.2% year-on-year, according to economists polled by Reuters .

The euro remained close to its lowest level since August 13, while against the yen, the dollar approached its strongest level since August 15.

The “U.S. exceptionalism trade” has rekindled recently amid a wave of strong jobs data, said Kyle Rodda, senior financial markets analyst at Capital.com, with minutes from the Fed’s latest meeting – released overnight – which confirms the central bank’s focus on maintaining a healthy labor market.

“The US dollar is regaining supremacy, … mainly because of the US economic outperformance,” Rodda said.

At the same time, “a positive US CPI surprise could force the Fed to question its confidence in the inflation path.”

San Francisco Fed President Mary Daly said late Wednesday that she is now less concerned about resurgent inflation than the damage to the labor market.

Traders are placing 80% odds on the Fed cutting rates by a quarter point at its next policy decision on Nov. 7, versus a 20% chance of no change, according to CME Group’s (NASDAQ: ) FedWatch tool. A day earlier, the probability of a discount was 85%.

The dollar index was little changed at 102.86 at 0024 GMT, remaining close to Wednesday’s high of 102.93.

The greenback fell 0.18 percent to 149.035 yen, but was not far from an overnight peak of 146.365.

The euro was steady at $1.0939 after falling to $1.0936 in the previous session.

The Australian dollar (AUD=D3> fell 0.07% to $0.6714, retreating from Wednesday’s low of $0.6708, the weakest level since September 16, after a stimulus announcement by the main trading partner China’s state planner declined.

China’s Ministry of Finance is scheduled to hold a press conference on fiscal policy on Saturday.

The New Zealand dollar added 0.07% to $0.6067, trying to pull away from Wednesday’s low of $0.6053, when the central bank cut interest rates by half a point and hinted at further easing, triggering a slide sudden change of currency.