Currencies: Dollar in holding pattern, with inflation data to highlight Fed’s aim to hike rates

A key gauge of the U.S. dollar’s performance steadied Friday before the release of figures on consumer price inflation, which have been in focus as the Federal Reserve has signaled its intent to raise interest rates again this year.

The ICE U.S. Dollar Index

DXY, -0.03%

was fractionally higher at 93.0900, while a broader measure of the buck’s strength, the WSJ Dollar Index

BUXX, -0.06%

moved down 0.1% to 86.36.

The ICE Dollar Index was on course to fall 0.7% for the week, the first weekly decline in five weeks.

“The recent weakness in the dollar has been as a result of the U.S. Federal Reserve’s concerns over low inflation, so today’s consumer price index report will be closely watched by investors and speculators alike,” said Konstantinos Anthis, a researcher at ADS Securities, in a note.

The Labor Department’s CPI report is due at 8:30 a.m. Eastern Time. Economists polled by MarketWatch forecast consumer prices to have risen 0.6% in September, compared with 0.4% in August, with core CPI to come in at 0.2%.

Inflation has remained below the central bank’s 2% annual target since 2012 even as the unemployment rate has fallen to just over 4% from 8%. Federal Reserve Governor Lael Brainard said Thursday that Fed officials are struggling to understand a “material” decline in the trend of inflation.

“An unambiguously bullish reading in the inflation report will help alleviate the Fed’s concerns about the low levels of price growth and a December rate hike will become more likely, hence pushing the dollar higher,” said Anthis at ADS.

“On the opposite case though, a miss on one or both reports will disappoint the dollar bulls … and further dumping of the U.S. currency should be expected,” he said, also referring to Friday’s consumer sentiment report due at 10 a.m. Eastern from the University of Michigan.

The Fed has indicated it plans to raise interest rates in December.

Other reports on Friday’s docket are retail sales data for September, at 8:30 a.m., and business inventories in August, expected at 10 a.m. Eastern.

Sterling: The pound

GBPUSD, +0.2338%

 traded at $1.3296, compared with $1.3262 late Thursday in New York. Sterling had climbed to an intraday high of $1.3324 after German newspaper Handelsblatt late Thursday reported that the European Union may offer a two-year Brexit transition deal to Britain.

Sterling hadn’t traded above $1.33 since Oct. 2, according to FactSet data.

The pound on Thursday was yanked below $1.32 after Michel Barnier, the EU’s chief Brexit negotiator, said not enough progress had been made for the EU and the U.K. to start discussing their future trade relationship.

EU officials are set to meet next week from Oct. 19-20, to determine the way forward on Brexit discussions.

Other moves: The euro

EURUSD, -0.0676%

 bought $1.1822, not far off from $1.1832 late Thursday. The euro was little changed following reports Thursday that the European Central Bank is getting closer on deciding how to start tapering asset purchases, which are set to expire in December.

The ECB may extend bond buying for nine more months but at a lower amount from the current pace of €60 billion a month, according to Reuters. Bloomberg reported the ECB is looking at cutting monthly bond buys by at least half, beginning in January.

Against the yen, the greenback

USDJPY, -0.11%

bought ¥112.15, pulling back from ¥112.29.