Dollar rises as investors look to next week’s inflation report; yen

(Recasts, adds new comment, U.S. data, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar gained on Friday as investors grew concerned about a U.S. inflation report next week that could show a number that is higher than markets forecast amid data showing expectations for a continued rise in prices over the next year.

The yen also rose across the board with Kazuo Ueda reportedly set to become the next Bank of Japan (BOJ) governor but pared gains after he said the central bank’s monetary policy was appropriate. The Japanese unit was on track for its first weekly gain versus the dollar after posting losses for three straight weeks.

As the data continued to show positive U.S. momentum, the dollar was on pace for its second weekly rise against a basket of six currencies, a run it has not seen since October.

The University of Michigan surveys on Friday showed a one-year inflation outlook of 4.2%, higher than the final number in January. The overall index of consumer sentiment came in at 66.4, up from 64.9 the prior month.

Federal Reserve Chair Jerome Powell has cited the Michigan survey’s inflation outlook as one of the indicators the U.S. central bank tracks.

Aside from the Michigan data, revisions showed that U.S. monthly consumer prices rose in December instead of falling as previously estimated, while data for the prior two months was also revised higher, according to the Bureau of Labor Statistics.

Mazen Issa, senior FX strategist at TD Securities said next week’s CPI report has been “put in the crosshairs because this morning we had indications that…inflation was on a stronger footing than initially perceived last year.”

“This is really challenging the idea that the Fed could cut rates and stronger data like payrolls, ISM (Institute for Supply Management) and continued tightness in labor markets are pushing the…higher-for-longer policy stance by the Fed…and that might what ends up happening. That puts the dollar back on the front foot.”

Data next Tuesday is likely to show that the U.S. consumer price index (CPI) climbing 0.4% month-on-month in January and the core CPI gaining 0.4% as well, according to a Reuters poll.

In afternoon trading, the , which measures the greenback against six other currencies, was up 0.4% at 103.55.

BOJ’S TOP JOB

In Japan, the had earlier reported the government would nominate academic Ueda to the BOJ’s top job, sending the yen surging as markets anticipated a possible earlier end to ultra-loose monetary policy.

But in comments streamed online by Nippon TV, Ueda said the central bank’s current easy monetary policy was appropriate and that it should continue, prompting some of the earlier yen strength to be reversed.

Japanese Prime Minister Fumio Kishida said the government is planning to present the BOJ governor nominee to parliament on…