The U.S. dollar rose against the euro and yen on Monday, as investors kept their focus on the Federal Reserve's interest rate hiking path after a policymaker said too much was being made of last week's cooler U.S. inflation data.
The dollar index fell 4% last week, marking its biggest weekly drop since March 2020, after data showing U.S. consumer prices rose less than expected in October prompted bets the Fed would scale back its hefty interest rate hikes.
But Governor Christopher Waller flagged on Sunday that the inflation print was "just one data point" and that other similar readings would be needed to show convincingly that inflation was slowing. Waller did say that the Fed could now start thinking about hiking at a slower pace.
The comments, however, poured cold water on investor hopes for a "rapid Fed recalibration," said Adam Button, chief currency analyst at ForexLive in Toronto.
"The market is having a bit of a rethink on the price action of last week," said Button adding that it "needs some time to digest the enormous."
"Until there's some new information, I'd expect the market to consolidate and digest some of these moves," he said.
The euro fell 0.22% against the dollar to $1.0329, after rising to a three-month high during Asian trading hours.
"I think reality has finally hit markets. Following last week's aggressive repricing, especially within European FX, and the latest pushback from senior Fed officials, traders are seemingly prioritising re-engaging in some U.S. dollar length," said Simon Harvey, head of FX analysis at Monex.
"We think euro/dollar downside has further to run despite ECB (European Central Bank) officials trying to underpin euro zone rates," he added.
ECB board member Fabio Panetta said on Monday that the central bank must keep raising rates but needs to avoid overtightening, as doing so could destroy productive capacity and deepen an economic downturn.
On the data front, figures showed on Monday that euro zone industrial production rose much more than expected in September, and output for August was revised upwards too, although economists said that may be partly due to manufacturers front-loading production before energy-related disruptions this winter.
Sterling fell ahead of British Chancellor Jeremy Gaunt's autumn statement on Thursday, when he is expected to set out tax rises and spending cuts.
The pound was down 0.68% at $1.1754, having risen 4% in the previous two sessions, touching on Friday its highest level since late August. The dollar index, which gauges the greenback against a basket of six other major currencies including the euro, yen, and sterling, rose 0.74% to 107.072. Cryptocurrencies remained in turmoil after the fall of FTX.
The crypto exchange's token was up 4.79% on the day at $1.49, but down 94% on a month-to-date basis, while Crypto.com's Cronos token has been halved in the past week to $0.07, according to price site CoinGecko.
Bitcoin had fallen as far as $15,784 earlier on Monday before recovering somewhat to trade up 1.82% at $16,607. China's onshore yuan rose to nearly a two-month high against the dollar, after the central bank lifted its official guidance fixing by the most since 2005 when Beijing abandoned the currency's decade-old peg against the greenback.
The yuan's rally coincided with a broad lift in Chinese market sentiment on official moves to help the embattled property sector and the government's decision to ease some of the country's strict COVID-19 restrictions.
Elsewhere, the dollar was up 0.75% against the yen at 139.82. The risk-sensitive Australian and New Zealand dollars slipped against the greenback, giving up some gains made after China moderated its zero-COVID strategy.