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MONDAY 8/11/2021 – DOLLAR FIRMS AS U.S. INFLATION POSES NEXT TEST The dollar slipped on Monday, falling below the 15-month highs it hit after Friday’s jobs data, as investors reassessed rate hike expectations and central banks’ tolerance of inflation. Last week, the US Federal Reserve stuck to its view that current high inflation is expected to be transitory. The Bank of England surprised the market by keeping rates on hold and, earlier in the week, the Reserve Bank of Australia (RBA) also pledged to be patient with policy. At 1257 GMT, the dollar index was down 0.1per cent on the day, at 94.176, having fallen since it hit its highest level in more than a year on Friday following stronger-than-expected payrolls data. “The market’s selling dollars because the central banks are not going to hike quite as quickly as we all previously thought,” said Neil Jones, head of FX sales at Mizuho. Jones said that less rapid rate hikes benefits risk assets such as stocks, which are inversely correlated with the US dollar. The next test of the Fed’s wait-and-see approach to inflation will be US CPI data due on Wednesday. “The tightening labour market will keep pressure on the Fed to keep tightening policy going forward, and speed up rate hike plans if labour force participation does not improve as expected,” MUFG strategist Lee Hardman wrote in a note to clients.   TUESDAY 9/11/2021 – STERLING SLIGHTLY LOWER, NEAR 5-WEEK LOWS The pound was slightly lower against the dollar and the euro on Tuesday not far from five-week lows touched last week, as fading rate hike expectations weighed on sentiment. Sterling fell sharply after the Bank of England surprised the market by leaving interest rates unchanged last week. According to the National Institute of Economic and Social Research (NIESR), Britain’s economy risks stagnation and sticky inflation over the coming years due to supply-chain bottlenecks and headwinds from Brexit. ING analysts expect more subdued trading into Thursday’s release of UK 3Q GDP data. Still, they predicted “a broad $1.34-1.38 range will last into year-end,” saying “the speculative community did not have enough conviction for driving it below the September support levels.” The pound fell 0.2% to 85.59 pence against the euro by 1500 GMT. It was down 0.1% against the dollar at $1.355, off a $1.3425 five-week low hit on Friday. Unicredit analysts said the sterling “needs to break fully beyond 1.36 (against the dollar) to convince markets to return long ahead of the mid-December BoE meeting.” Markets are assigning an around 50% probability of a rate hike in December, while before the BoE meeting, they had priced two rate hikes by year-end.   WEDNESDAY 10/11/2021 – FOREX-DOLLAR NEAR ONE-MONTH LOW TO YEN AS INFLATION TEST LOOMS The dollar held a three-day loss against major peers and traded near a one-month low to the yen on Wednesday, with highly anticipated U.S. inflation data looming that could guide the timing of a Federal Reserve interest rate increase. China will also release readings on consumer and producer prices on Wednesday, which could sway the direction of policy there as property sector woes threaten the broader economy. The dollar index, which measures the greenback against six rivals, was little changed at 93.970 after retreating gradually from a more than one-year peak at 94.634 reached Friday. The currency was steady at 112.915 yen after dipping to 112.73 on Tuesday for the first time since Oct. 11. The euro was also about flat at $1.15925, maintaining a three-day gain that has brought it close to the month’s high of $1.16165. Economists polled by Reuters see October’s U.S. consumer price index accelerating to 0.4% from the previous month’s 0.2% rise, with the closely watched year-on-year core measure gaining 0.3 percentage point to 4.3%, well above the Fed’s average annual 2% inflation target.   THURSDAY 11/11/2021 – STERLING HITS FRESH 2021 LOW VS DOLLAR, ECONOMY LOSES STEAM Sterling fell to its lowest level of 2021 against the dollar on Thursday as the British economy appeared to lose momentum and a surge in U.S. inflation boosted the greenback amid bets that the Federal Reserve would hike interest rates faster than expected. Data released by the Office for National Statistics showed Britain’s economy grew by 0.6% in September but estimates for previous months were revised lower, leaving the economy still smaller than it was in February 2020. “The latest UK growth data has done little to help the pound at a time of weakness”, IG market analyst Joshua Mahony commented. Sterling fell to its lowest since December 2020 in morning trading at $1.3365 and failed to recover through the session. At 1614 GMT it traded down 0.13% at $1.3385. In its November policy meeting, the Bank of England left its main interest rate unchanged at 0.1% having previously signalled it could raise it. Markets are now pricing in a high probability of a December rate rise but uncertainty remains high. ING market economist James Smith said he believed the slowing momentum of the British economy was unlikely to have a major influence on BoE policymakers for whom the recovery of the labour market is a key priority.   FRIDAY 12/11/2021 – FOREX-DOLLAR CLIMBS FOR A 3RD DAY AS SHORT-END U.S. YIELDS RISE The dollar tiptoed higher for a 3rd consecutive day on Friday since a surprisingly strong U.S. inflation print shocked markets and prompted investors to advance their bets on a U.S rate hike to as early as mid-2022. With short-dated U.S. Treasury yields edging higher — five-year bond yields rose to a February 2020 high — investors ramped up bets that U.S. policymakers will be forced to raise interest rates sooner than later. Against a basket of its rivals, the dollar index firmed 0.1% to 95.27, its highest level since July 2020. The greenback’s push higher this week has seen it break above a two-month trading range with analysts predicting more gains. “We don’t think this is the end of the move and expect the U.S. dollar to remain strong into the first half of 2022 as we will be going into the first half of 2022 with the Fed’s taper coming to a conclusion and a looming rate hike will offer support for the dollar in this period,” Mizuho strategists said. The renewed strength in the dollar has injected fresh life in the moribund currency volatility markets as traders have scrambled to buy options to protect themselves against further dollar strength. A currency volatility index hit a fresh 6-month high.