U.S. Dollar Spikes Up As Strong Inflation Data Dents Early Rate-cut Prospects

(RTTNews) - The U.S. dollar firmed against its major counterparts in the New York session on Tuesday, as hotter-than-expected inflation data for January reduced the possibility of a rate cut by the Federal Reserve in May.

Data from the Labor Department showed that the consumer price index rose by 0.3 percent in January after inching up by 0.2 percent in December. Economists had expected consumer prices to edge up by 0.2 percent.

Excluding food and energy prices, core consumer prices climbed by 0.4 percent in January after rising by 0.3 percent in December. Core prices were expected to increase by 0.3 percent.

While the report also showed the annual rate of consumer price growth slowed to 3.1 percent in January from 3.4 percent in December, economists had expected the pace of growth to slow to 2.9 percent.

The annual rate of core consumer price in January came in unchanged from the previous month at 3.9 percent. The pace of core price growth was expected to decelerate to 3.7 percent.

U.S. treasury yields jumped and the dollar index rallied after the data.

CME Group's FedWatch Tool is currently indicating just a 5.5 percent chance of a quarter point rate cut in March, while the chances of a quarter point rate cut in early May have fallen to 32.3 percent.

The greenback appreciated to near 3-month highs of 1.0700 against the euro and 0.8874 against the franc, from yesterday's close of 1.0772 and 0.8756, respectively. The greenback is seen finding resistance around 1.05 against the euro and 0.92 against the franc.

The greenback strengthened to near 3-month highs of 150.58 against the yen and 0.6452 against the aussie, from Monday's close of 149.33 and 0.6530, respectively. The currency may find resistance around 152.00 against the yen and 0.62 against the aussie.

The greenback moved up to a 2-month high of 1.3578 against the loonie and a 1-week high of 0.6054 against the kiwi, from its previous close of 1.3450 and 0.6130, respectively. It is likely to locate resistance around 1.38 against the loonie and 0.59 against the kiwi.

The greenback advanced to a 5-day high of 1.2575 against the pound, from near a 2-week low of 1.2683 seen at 8:05 am ET. At yesterday's close, the pair was quoted at 1.2628. Next key resistance for the currency may be located around the 1.21 level.