- Reuters reports China considering allowing yuan to weaken
- Traders watch U.S. inflation for clues on pace of Fed rate cuts
- Japanese inflation supports expectations of Dec BOJ rate hike
- Canadian dollar at 4-1/2-year low with BOC set to slash rates
LONDON/TOKYO, Dec 11 (Reuters) - The dollar gained against European peers on Wednesday ahead of a highly anticipated reading of U.S. inflation, 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 euro was last down 0.1% at $1.0515, a day before a European Central Bank meeting, and the pound shed 0.2% to $1.2747 as traders awaited U.S. CPI data, which will be released at 1330 GMT.
Economists expect both headline and core consumer prices to have risen 0.3% in November from previous increases of 0.2% and 0.3%, respectively.
Traders currently assign 85% odds to a quarter-point rate cut by the Fed on Dec. 18, but a higher than expected print could possibly disrupt these expectations, and concern about this was supporting the dollar on Wednesday.
"The market is thinking 'what if that CPI report comes in strong?' and then some of the Fed easing expectations could be priced out which would be dollar supportive," said Jane Foley head of FX strategy at Rabobank.
She 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 in a second Donald Trump presidency in the United States.
The bigger movers on the story were naturally in Asia. The dollar jumped on the yuan, but gave back some of those gains and was last up 0.1% against the offshore unit at 7.2662 and 0.14% higher on the onshore currency at 7.2590.
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.
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 Antipodean currencies fell with the Aussie last down 0.26% to $0.6361 and the kiwi 0.34% lower at $0.5781, after both touched on year lows after the report. Korea's under-fire won also dipped.
Japan's yen was in focus as well, weakening after a report from Bloomberg news saying the BOJ sees "little cost" to waiting for the next rate hike.
The dollar was last 0.43% higher at 152.63 yen.
Earlier in the day the yen had strengthened after data showed Japanese wholesale inflation accelerated, supporting the case for a Bank of Japan interest-rate hike next week.
"The data is leaning towards a hike," said Bart Wakabayashi, co-branch manager at State Street in Tokyo. "Put it this way: if they raise, it's a very defendable position."
At the same time, "we've seen overall very strong economic numbers in the U.S.," Wakabayashi said.
"All the reasons that we bought the dollar in the first place, they still persist," he said. "If you ask me if I think we'll see 145 or 155 (yen per dollar), at this point I'd say 155."
In other central bank news, the Bank of Canada meets later Wednesday and the Swiss National Bank meets on Thursday just ahead of the ECB.
The BoC is seen as likely to cut by a half point which is helping to pin the loonie near a 4-1/2-year trough to the greenback. One U.S. dollar last bought C$1.4179 .
The Swiss franc firmed a touch on the euro at 0.9283 to the common currency and was steady against the dollar with one dollar 0.8833 francs. ,
Reporting by Alun John in London and Kevin Buckland in Tokyo; Editing by Sam Holmes and Toby Chopra
Source: Reuters