Dollar picks up slightly with CPI release in focus

The U.S. dollar drifted higher Thursday as traders weighed up fresh trade threats between Washington and Beijing, ahead of the release of key inflation data.

The Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 98.805, bouncing after recording hefty losses last week.

The safe-haven dollar has edged slightly higher as traders have worried about the fragile state of U.S.-China relations, amid fears of a potentially damaging trade war between the world's two largest economies.

Trump's administration is considering a plan to restrict a broad array of software-powered exports to China, including laptops, jet engines, and other high-tech products, in response to Beijing's latest rare earth export restrictions, Reuters reported.

The U.S. president and Chinese President Xi Jinping are expected to meet in South Korea next week, and while Trump has expressed optimism about the talks, he also acknowledged that a meeting may not take place.

Additionally, Trump has announced sanctions on Russia's largest oil companies, Lukoil and Rosneft, with his administration citing Moscow's "lack of serious commitment to a peace process to end the war in Ukraine."

This has resulted in strong gains for crude oil, which are denominated in dollars.

However, "the move has merely unwound October's losses so far, and we'd likely need to see Brent heading to $70 from the current $64 a barrel to result in tangible support for USD," said ING analyst Francesco Pesole, in a note.

The U.S. government shutdown continues, but the September consumer price index is set to be released on Friday, more than a week late, and may be the next catalyst for a major dollar move.

"We reiterate our view that the dollar's rebound is getting tired and probably requires some hawkish repricing to keep going," said Pesole. "We don't think tomorrow's U.S. CPI will offer that opportunity as we expect a consensus 0.3% MoM core print. But surely with 50bp of easing fully priced in by year-end, any hot print could offer good support to the dollar.

Source: Investing.com