Dollar higher after CPI; China considers letting yuan weaken
Updates with late U.S. trade
Reuters reports China considering allowing yuan to weaken
Fed rate cut next week looks almost certain after US price data
Japanese inflation supports expectations of Dec BOJ rate hike
Canadian dollar at 4-1/2-year low with BOC set to slash rates
By Hannah Lang
NEW YORK, Dec 11 (Reuters) -The dollar was higher on Wednesday after U.S. price data came in line with forecasts, reinforcing expectations the U.S. Federal Reserve will cut interest rates next week.
The dollar was also boosted by a Reuters report China was considering allowing a weaker currency next year, which sent the yuan and other Asian currencies lower.
The consumer price index rose 0.3% last month, the largest gain since April after advancing 0.2% for four straight months, data showed on Wednesday. Economists polled by Reuters had forecast the index would rise 0.3%.
Following the report, the likelihood of a quarter-point rate cut by the Fed on Dec. 18 rose to more than 94%, according to CME's FedWatch tool.
"The market is as confident as possible, practically, that the Fed is still going to cut rates next week," said Marc Chandler, chief market strategist at Bannockburn Forex in New York. "Very rarely does the Federal Reserve go against the market when such strong odds are priced in.”
The U.S. dollar index was last up 0.329% at 106.7.
Analysts said the dollar was also being affected by Reuters' report that China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher trade tariffs under a second Donald Trump presidency.
Against the yuan, the dollar was last up 0.3% against the offshore unit at 7.2825 CNH=D3.
The contemplated move reflects China's recognition that it needs bigger economic stimulus to combat Trump's threat of bigger tariffs, people with knowledge of the matter said, according to the report.
"That's going to keep Asian currency more depressed [and]keep emerging markets more depressed," said Helen Given, FX trader at Monex USA.
China is expected to hold its annual Central Economic Work Conference this week, after Monday's Politburo meeting vowed to switch to an "appropriately loose" monetary policy to spur economic growth.
"If a currency depreciation served as a tactic to counter tariff shock, the likely escalating trade war could reinforce (U.S. dollar) exceptionalism and weigh on regional currencies," said Ken Cheung, FX strategist at Mizuho.
China-exposed currencies fell, with the Aussie AUD=D3 last down 0.11% to $0.6371 and the kiwi NZD=D3 0.26% lower at $0.579, after both touched on year lows after the report. Korea's under-fire won also dipped. KRW=
Japan's yen was in focus after Bloomberg news reported the Bank of Japan sees "little cost" to waiting for the next rate hike.
The dollar was last 0.44% higher at 152.63 yen. JPY=EBS
Earlier in the day, the yen strengthened after data showed Japanese wholesale inflation accelerated, supporting the case for a Bank of Japan interest-rate hike next week.
On Wednesday, the Bank of Canada slashed its key policy rate by 50 basis points to 3.25% to help address slower growth. That move helped keep the loonie near a 4-1/2-year low against the greenback. One U.S. dollar last bought C$1.4156 CAD=D3.
In a busy week for monetary policy, the European Central Bank and Swiss National Bank will meet on Thursday.
The euro EUR=EBS was down 0.34% at $1.0492, while the Swiss franc CHF=EBS was down 0.21% against the dollar at 0.8846.
World FX rates https://tmsnrt.rs/2RBWI5E
Reporting by Hannah Lang in New York; additional reporting by Alun John in London and Kevin Buckland in Tokyo; Editing by Sam Holmes, Will Dunham, Toby Chopra and Christina Fincher
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