2023.10.1613:57:00UTC+00Week Ended October 13: Dollar Lifted By Safe Haven Bids, Sticky CPI

Safe haven demand for the U.S Dollar following the Middle east conflict boosted the greenback's fortunes in the beginning of the week spanning October 9 to October 13. The less-than-expected cooling in the consumer price inflation in the U.S. further bolstered the Dollar, helping it gain against the euro, the British pound, the Australian Dollar, and the Japanese Yen. The Dollar's strength, as measured by the movements in the Dollar Index or DXY reflected in a jump of 0.58 percent during the past week, providing an emphatic rebound after a week of decline that had ended a 11-week bullish streak. The index, that measures the Dollar's strength against a basket of 6 currencies closed Friday at 106.65, versus 106.04 a week earlier. The index touched the week's low of 105.54 on Thursday and the high of 106.79 on Friday. Markets had expected headline year-on-year CPI to decline to 3.6 percent. Instead, it remained steady at 3.7 percent. Markets had also expected month-on-month CPI to decline to 0.3 percent from 0.6 percent earlier. However, it dropped only to 0.4 percent. Readings released a day earlier had shown Producer Price Inflation in the U.S. at 0.5 percent in the month of September. Markets had expected it to fall to 0.3 percent from 0.7 percent in the previous month. The sticky CPI and PPI renewed fears of the Federal Reserve keeping interest rates higher for a longer period, strengthening the U.S. Dollar.

Brent crude, which jumped from $84.58 on October 6 to $90.89 by October 13 amidst supply concerns ignited by the Middle East conflict, also added to fears of fuel-led inflationary pressures and hawkish response from the Fed, supporting the Dollar's rise.

The EUR/USD pair declined 0.73 percent during the week ended October 13, closing at 1.0509 versus 1.0586 a week earlier. The euro touched a weekly high of $1.0640 on Thursday before falling to the week's low of $1.0495 on Friday. The weakening activity in the eurozone economy, the strong underlying inflation and a strong labor market have created a challenging interest rate environment for the common currency.

The pound too declined around 0.79 percent against the greenback during the past week, amidst a rebound in GDP growth in the month of August. The GBP/USD pair dropped to 1.2141 from 1.2238 a week earlier. The pair had touched the week's high of 1.2339 on Wednesday and the low of 1.2121 on Friday.

The Australian dollar, which often trades as a proxy for Chinese growth shed around 1.4 percent versus the U.S. dollar during the week ended October 13. China's CPI data released on Thursday portended deflationary tendencies whereas its trade data showed a sharp decline in both exports and imports. Weak commodity prices also dampened sentiment for the Aussie, causing the AUD/USD pair to decline from 0.6383 on October 6 to 0.6291 by October 13. The pair had touched the week's high of 0.6446 on Wednesday and the week's low of 0.6285 on Friday.

The USD/JPY pair came close to touching the psychological level of 150 during the week ended October 13. During the week, the pair ranged between the low of 148.16 touched on Tuesday and the high of 149.88 traded on Thursday. Amidst the decline in the yen versus the Dollar, Tokyo had let known its intention to take necessary action in the exchange rate market. Still, the USD/JPY pair increased 0.15 percent during the week, from 149.32 on October 6, to 149.55 on October 13.

With geopolitical tensions in the Middle East continuing unabated, the dollar's safe haven status remains strong. Economic updates spanning unemployment, economic sentiment, retail sales, GDP growth, Industrial Production, inflation, Balance of trade etc. are due from major economies over the next few days. Markets are also awaiting speeches of a slew of Fed officials including Chair Jerome Powell over the course of the week.

Amidst the anticipation and anxiety, the DXY is currently at 106.40. The EUR/USD pair has increased to 1.0537 whereas the GBP/USD pair has risen to 1.2172. The AUD/USD pair has also moved up to 0.6321 ahead of the release of the minutes of the Reserve Bank of Australia, due later in the day. The USD/ JPY pair has edged up to 149.57.