Dollar stuck after jump to seven-month high

London - The inflation numbers are unlikely to shift the broader picture of a US central bank on the cusp of raising rates.

The dollar struggled to make further progress after hitting a seven-month high against the euro on Tuesday while sterling was bolstered by a better than expected readout on core inflation ahead of US numbers later in the day.
An early surge by the dollar, building on Monday's 0.5 per cent gain, offered hope of an attack on levels around $1.06 against the euro, which dealers say is the main barrier to a swift move back to highs hit in the first half of 2015.
After hitting a seven-month high of $1.0647 against euro, the dollar was up 0.15 per cent at $1.0671 by 1130 GMT and flat on the day against a basket of currencies.
"We have thought for a week now that these levels around $1.0600, $1.0640 are the key ones for the euro," said the head of spot currency trading at a large international bank in London, who asked not to be named.
"If it gets below these levels it could go very quickly. The pain trade is obviously in the other direction and I would note that we have seen clients betting on the dollar using options to cheapen their dollar positions into the end of the year."
Almost all major currency trading banks are forecasting a rise towards parity with the euro in the months ahead, but the past two weeks have proved stickier for the dollar than some expected. Options markets also point to substantial barriers to further gains between current levels and March and April highs around $1.0450.
Some traders said there were concerns of a lower printout on US consumer price data due later in the session, potentially weakening the case for a rise in Federal Reserve interest rates that is now broadly expected next month.
The inflation numbers are unlikely to shift the broader picture of a US central bank on the cusp of raising rates. But in a note overnight, Citi head of G10 FX strategy, Steven Englander, laid out a handful of risks to current market pricing from Wednesday'spolicy meeting minutes.
"The big risk is that the minutes convey that many FOMC members are less convinced on a December hike than the market now thinks and could easily be swayed by market uncertainty or other events to wait another couple of meetings," he said.
In sharp contrast with the Fed, the European Central Bank is considered very likely to expand or extend its quantitative easing programme next month, while potentially also cutting deposit rates, which is keeping the euro under pressure.
Sterling bounced back from initial losses to trade flat on the day at $1.5203. It was 0.2 per cent higher against the euro.
"There is a lot of natural retail demand for sterling around $1.50," another dealer said. "It is always going to be hard to break that level."

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