Kevin Buckland

TOKYO (Reuters – The dollar remained stable on Wednesday ahead of the U.S. consumer price index data, which could provide clues to how fast the Federal Reserve is tightening.

Following its fall from almost three months top, the euro looked to be finding a basis after Christine Lagarde, President of European Central Bank, reduced expectations about aggressive rate hikes earlier in this week.

As global stocks continued their gains, the Australian dollar experienced a slight lift.

Following its steady retreat from Friday’s $1.1483 peak, the euro was practically flat at $1.14195. It was also equaling its highest level since Nov. 11th.

Kimberley Muny of Commonwealth Bank of Australia wrote, “We believe pricing for near term ECB rate rises is too aggressive,” citing the euro’s “modest downside potential” relative to the dollar.

After rebounding from Friday’s 95.136 low, the, which measures the greenback in relation to six major peer currencies, was little affected at 95.587. At 97.441, it was at its highest level since June 2020.

Markets were caught off guard by the Fed and ECB’s more hawkish tone last week. This caused yields to soar on U.S. and eurozone debts in anticipation that rates will rise quicker and higher than expected.

Lagarde stated Monday that there is no need to tighten the belt, in an attempt to calm rising expectations of aggressive action following her last week’s opening for a possible rate increase.

According to Westpac strategists, the dollar index “is in a holding pattern” as markets consider the prospects of Fed policy tightening against ECB’s hawkish turnflip.

While a less hawkish ECB may keep the dollar index’s gains in check for the short-term, it will maintain its “medium term bull trend” which is a buy on dips down to 95.

According to CME’s FedWatch Tool, the markets have priced in a more than 70% chance of an increase in 25 basis points and nearly 30% for a 50 base point rise in policymakers’ meetings in March.

Mary Daly from San Francisco Fed stated Tuesday that the U.S.’s high inflation might get worse before it gets better.

According to economists polled at Reuters, consumer prices rose 7.3% in January. The U.S. will release its data on Thursday.

On Wednesday, the dollar touched a brief one-month high against the yen. This was aided by an overnight rise in Treasury yields that reached multi-year peak levels. [US/]

Dollar reached 115.69 Yuan before falling back to the last trade at 115.50.

Sterling gained 0.07%, or 0.1%, to $1.3555.