· The U.S. dollar rose modestly on Wednesday after a measure of inflation excluding energy prices rose, prompting the greenback to reverse the prior day's pullback.
The Labor Department reported that its Consumer Price Index was unchanged for the third straight month in January, held down by cheaper gasoline. But excluding the volatile food and energy components, the CPI gained 0.2 percent, rising by the same margin for a fifth straight month.
In the latest 12-month period, the so-called core CPI rose 2.2 percent for a third straight month. Evidence of inflation can increase the value of the dollar by raising expectations that the Federal Reserve will tighten monetary policy.
The dollar fell on Tuesday as investors put money in riskier assets on rising hopes of a breakthrough in U.S-China trade talks. It had gained for eight consecutive sessions at the end of Monday, the most since February 2017.
The dollar index rose by 0.43 percent to 97.13. It stood at $1.127 against the euro, about half a percent stronger.
· U.S. consumer prices were unchanged for a third straight month in January, leading to the smallest annual increase in inflation in more than 1-1/2 years, which could allow the Federal Reserve to hold interest rates steady for a while.
The Labor Department said on Wednesday its Consumer Price Index last month was held down by cheaper gasoline, which offset increases in the cost of food and rents.
In the 12 months through January, the CPI rose 1.6 percent, the smallest gain since June 2017. The CPI increased 1.9 percent on a year-on-year basis in December.
The dollar rose against a basket of currencies after the data, while U.S. stock index futures held gains. Prices of U.S. Treasuries were trading lower.
· U.S. government debt yields rose Wednesday as investors grew more optimistic about trade talks between China and the U.S. There are also a number of Fed speeches that will be followed closely.
At around 2:18 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 2.708 percent, while the yield on the 30-year Treasury bond was also higher at 3.036 percent.
· A trade deal with China could stop the dollar's rise, but it may not stay down if President Donald Trump then turns his focus to tariffs on European cars.
Strategists say the initial reaction in the dollar, should the U.S. and China come up with a trade deal, would be a decline, as emerging market currencies jump and the euro gains, at least in the short term.
But the Commerce Department is soon expected to release the results of its study of the global automobile industry, through the prism of national security concerns, and many analysts believe it will recommend tariffs on European vehicles. The report is expected Feb.17, and the administration would then have 90 days to act on it.
· Mark McCormick, TD Securities head currency strategist, said the euro could head to the top of its recent range, to about $1.16after a China deal. "If there are European tariffs, we're going to 1.10," he said. Euro/dollar was at 1.1264 Wednesday.
The euro would dive on new tariffs, and the dollar would strengthen.
"The U.S. dollar goes up on issues of trade uncertainty because the rest of the world is hurt more," said Randol.
· U.S. President Donald Trump and Chinese President Xi Jinping are expected to meet next month, a U.S. Department of Agriculture official said at an industry event on Wednesday, as the two countries try to hammer out a deal to end a tit-for-tat tariff battle.
Chinese President Xi Jinping will meet with Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer on Friday as both sides pursue a trade deal before an early March deadline, the South China Morning Post reported.
· U.S. President Donald Trump on Wednesday edged toward backing a deal in Congress on government funding that would not meet his demand for $5.7 billion for a wall on the Mexican border but would avert a partial government shutdown.
The Republican president did not commit himself to backing the government funding agreement struck between Democratic and Republican lawmakers this week. But two sources and a Republican senator close to the White House said he would likely sign off on it.
With a Friday night deadline looming before a shutdown, there is little time for the White House and the political parties in Congress to agree on funding.
· Japan’s economy expanded in the fourth quarter as business and consumer spending recovered from natural disasters, however global trade protectionism remained a concern for the country.
The 1.4 percent annualized expansion in October-December matched the median estimate in a Reuters poll. It followed a revised 2.6percent annualized contraction in July-September as floods and an earthquake temporarily halted production.
The data also showed real exports rose 0.9 percent in October-December from the previous quarter, which was the fastest gain in a year.
Despite the increase in shipments, some economists remain concerned that exports will weaken this year if the United States and China do not resolve their trade dispute.
· Oil prices rose on Wednesday after top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper cut to its production, but swelling U.S. crude inventories led the market to pare gains.
U.S. crude oil inventories rose last week to the highest since November 2017 as refiners cut runs to the lowest since October 2017, the Energy Information Administration said.
The increase came despite falling net imports, which dropped to the lowest on record, as domestic crude production remained at peak levels for the fifth straight week.
U.S. West Texas Intermediate crude oil futures ended Wednesday's session 80 cents higher at $53.90 a barrel, a 1.5 percent gain.
Brent crude futures rose $1.19, or 1.9 percent to $63.61. The global benchmark earlier touched a session high of $63.98, but pulled back after the data was released.
Reference: CNBC, Reuters
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