The dollar slid on Friday after U.S. CPI failed to live up to some investors' elevated expectations nL1N2SV0W9, even though it hit its highest since 1982, as a recent buildup of dollar longs left the U.S. currency vulnerable to profit taking.
Though the 6.8% CPI print matched Reuters consensus forecast and exceeded October’s 6.2% reading, dollar longs were positioned for a hotter inflation number to put an exclamation mark on expectations of an accelerated Fed taper timeline and rate hikes potentially coming in the first half of 2022.
CPI expectations were particularly elevated after comments from President Joe Biden on Thursday had left markets bracing for stronger numbers than the consensus forecasts already baked into market pricing.
Meanwhile, the approach of next week's Fed meeting -- expected to announce a quicker tapering -- and the approach of thin year-end liquidity are creating choppy cross-currents.
EUR/USD rose 0.21% to 1.1316.
Divergence between the inflation-fighting Fed and the ECB, which is expected to remain on hold for the foreseeable future, remain a hindrance for the euro.
USD/JPY was flat at 113.45, losing earlier gains after disappointed USD longs lightened positions.
The ECB and BoJ are likely to remain especially dovish at rate meetings next week, contrasting sharply with Fed expectations.
GBP/USD gained 0.29% to 1.3259.
Sterling outpaced other majors after the relatively disappointing U.S. CPI release.
GBP bulls still hold out slight hope for a 15bp hike after the BoE’s meeting on Dec.
AUD/USD rallied 0.27% to 0.7165, rising as the recent significant short AUD unwound in sympathy with CNH gains and on reduced Omicron contagion fears.
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