2014.10.2211:15:00UTC+00Dollar Extends Gain As U.S. Consumer Price Index Edges Up Unexpectedly

The U.S. dollar extended its early rally against most major counterparts on Wednesday, after consumer price inflation in the U.S. unexpectedly showed a modest increase in September, as the continued decline in energy prices were offset by higher prices for food and shelter.

The Labor Department report showed that consumer price index edged up by 0.1 percent in September following a 0.2 percent drop in August. The modest uptick came as a surprise to economists, who had expected prices to come in unchanged.

Excluding food and energy prices, the core consumer price index also inched up by 0.1 percent in September after coming in unchanged in the previous month. The increase matched economist estimates.

From a year earlier, consumer prices came in at 1.7 percent, up from the expected 1.6 percent rise. The Federal Reserve aims to keep an inflation goal of 2 percent.

Despite a firm employment growth, inflation in the U.S. has remained tepid, causing concerns among the policy makers.

With the Fed on track to end its bond-buying program at its October 28-29 meeting, market participants are now closely watching when it might move to raise benchmark interest rates from near zero level.

The greenback appreciated to 1-week highs of 0.9524 against the franc and 1.2664 against the euro, after falling to 0.9471 and 1.2739, respectively in early deals. The next possible resistance for the greenback lies around 0.965 against the franc and 1.255 against the euro.

The greenback resumed its early advance against the yen, touching 107.19 after the gap of a day. The pair was worth 106.98 when it closed deals yesterday. Further bullish trend may help the greenback to find resistance around the 108.5 zone.

Japan had a merchandise trade deficit of 958.3 billion yen in September, data from the Ministry of Finance showed. That missed forecasts for a shortfall of 780.0 billion yen following the 949.7 billion yen deficit in August.

The greenback held firm against the pound, lying not far from early 6-day high of 1.6010. The pound-greenback pair was worth 1.6107 at yesterday's close. If the greenback extends gain, 1.59 is seen as its next possible resistance level.

The pound was under pressure after the Bank of England's minutes of its October meeting showed that the policy makers remain split on raising rates.

While Ian McCafferty and Martin Weale sought a quarter point hike in the bank rate, to 0.75 percent, while other seven members including Governor Mark Carney voted to keep the rate unchanged at 0.50 percent, the minutes revealed.

The greenback advanced to 1.1272 against the loonie, up by 0.5 percent yesterday's closing value of 1.1219. The greenback is poised to test resistance around the 1.14 region.

Continuing its early gains, the greenback hit a 2-day high of 0.7934 against the NZ dollar. This is a 0.2 percent increase from Tuesday's close of 0.7953. Next key resistance for the greenback is likely be found around the 0.78 level.

Looking ahead, the Bank of Canada will announce its interest rate decision shortly. Economists expect the bank to retain interest rates unchanged at 1.00 percent.