Dollar dips as soft U.S. inflation weighs; Fed in focus next week

The dollar slipped against major currencies on Wednesday after softer-than-expected U.S. inflation data released on Tuesday eased short-term expectations about tapering of asset purchases from the Federal Reserve.

The dollar index last stood at 92.546, down about 0.1% on the day from Tuesday, when it dropped following the inflation data but recovered on haven demand as stocks slid on Wall Street.

But the greenback trimmed losses after data showing import prices fell unexpectedly in August and a higher-than-expected reading for the New York Fed’s business survey.

These reports offset data showing U.S. manufacturing output slowed in August, rising 0.2% from a 1.6% increase the previous month.

“The reality is that there is no guidance other than the obvious: poor economic indicators mean the recovery from the pandemic has slowed down more than expected by Delta,” said Juan Perez, FX strategist and trader at Tempus Inc in Washington.

“The buck in the midst of all this will still have room for gains and spikes as doom and gloom play a role in diminished risk-appetite, but idiosyncratic improvements in the U.K., as we saw with CPI, and other regions could eventually start weakening the dollar more consistently,” he added.

Wednesday’s data showed Britain’s inflation rate hit its highest in almost a decade last month after a record jump that was largely fuelled by a rebound in restaurant prices.

The dollar index, a measure of the greenback’s value against six major currencies, has traded between 92.3 and 92.9 over the past week as several Fed officials suggested the U.S. central bank could reduce buying debt securities by the end of the year, even after a weaker-than-expected payrolls report earlier this month.

While elevated inflation has kept pressure on policymakers, data overnight showed the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1% last month.

The Federal Open Market Committee’s (FOMC) two-day policy meeting next week should provide some clarity on the outlook for tapering and interest rates.

Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. It also means the central bank will be buying fewer debt assets, in effect reducing the number of dollars in circulation and increasing the currency’s value.

In early afternoon trading, the euro was little changed against the dollar at $1.1808.

The dollar fell to a four-week low of 109.14 yen, and last changed hands at 109.43, down 0.2%.

Meanwhile, the Chinese yuan and Australian dollar slid after Chinese data showed factory and retail sales growth cooled more sharply than expected last month.

The yuan extended its decline to as far as 6.4433 yuan per dollar. The dollar was last down 0.2% at 6.4261 yuan.

The Aussie dollar sank as low as US$0.7301, its lowest in more than two weeks following China’s data, but recovered to trade up 0.1% US$0.7329.

Dollar holds tight range as investors await U.S. inflation data

The dollar was little changed against other major currencies on Tuesday as investors looked to U.S. inflation data later in the session for clues on the timing of policy tightening by the Federal Reserve.

The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday while the euro changed hands at $1.18105, having bounced back from Monday’s low of $1.17705, its lowest since Aug. 27.

An immediate focus is on U.S. consumer price data due at 1230 GMT.

Economists expect core CPI, an index which strips out volatile energy and food prices, to have risen 0.3% in August from July. Its annual inflation is seen easing slightly to 4.2% from 4.3% in July.

Overall consumer price inflation is expected to dip slightly to 5.3% from 5.4% in July.

“With the core CPI still seen above 4%, inflation is at a very abnormal level. Powell has been saying inflation will be transient since March but the Fed will probably have to adjust its wording in the next policy statement,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Fed will hold its policy meeting next week. The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November.

“Tapering this year is a done deal. The next question will be whether the Fed will raise interest rates next year. Given persistent inflation, the Fed may not be able to afford to be relaxed about it for too long,” Ishizuki said.

The yen eased slightly to 110.005 yen to the dollar but stayed in its familiar territory over the past few weeks around 110.

Limited moves in the currency pair saw traders reducing expectations for market swings.

Implied volatilities on dollar/yen options have fallen to historic levels, with one-month volatility falling to as low as 4.625%, its lowest since February last year just before the pandemic.

Risk-sensitive currencies were little moved for now, with sterling at $1.3836 and the Australian dollar at $0.7362.

While the world’s stock markets stood near record highs, supporting risk sentiment, some analysts warn of growing headwinds to risk sentiment.

“Global risk appetite is edging toward a more tenuous and twitchy phase. A discordant G2 is increasingly the problem,” said Alan Ruskin, macro strategist at Deutsche Bank in New York.

“The U.S.-China trade dispute has not found any resolution. On the contrary, market forces are dominating quantity targets, and widening bilateral balances will again prove a source of tension,” he added.

Many investors were also keeping an eye on developments in China, where cash-strapped property developer Evergrande struggled to fend off solvency concerns while a relentless wave of regulatory moves by Beijing hit big tech firms.

In the crypto market, Bitcoin dropped to as low as $43,400, its lowest in almost a week and last stood at $44,973 while ether also eased to $3,283.

Dollar hits two-week high as Fed tapering expectations grow

The dollar stengthened to a two-week high versus a basket of major currencies on Monday as market expectation builds that the Federal Reserve could taper its stimulus sooner rather than later despite a surge in COVID-19 cases.

The dollar index rose 0.3% to 92.880 in early European trading hours, its highest level since August 27. It was last up 0.2%.

A flurry of U.S. economic data is due out this week, starting with U.S. consumer price data on Tuesday, which will frame the economy’s progress ahead of the Federal Reserve’s meeting next week.

The Philadelphia Fed President Patrick Harker became the latest offical to say he wants the central bank to start tapering this year, saying in a Nikkei interview that he was keen to scale back asset purchases.

“The U.S. dollar’s recent rebound has coincided with more hawkish comments from Fed Presidents,” FX analysts at MUFG said in a note.

The Wall Street Journal reported on Friday that Fed officials will seek to make an agreement to begin paring bond purchases in November.

Further U.S. data this week should help set the tone ahead of the meeting, with retail sales and productions figures also slated for later this week.

The euro was among the currencies to lose ground to the dollar, dipping 0.3% to $1.17750, its lowest level in a little over two weeks, after the European Central Bank said last week it would start to trim its own emergency bond purchases.

The yen also fell back around 0.2% and was last at 110.090.

“A couple of dynamics favour the dollar,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

“Re-opening still faces challenges from the consumer, who is cautious and from bottlenecks which restrict ability for the economy to rebound with some gusto.

“At the same time rising infections suggest we may still need to reintroduce restrictions of some sort. The other thing is that the Fed continues to signal that tapering is coming.”

Dollar set for first winning week in three with Fed in focus

The dollar headed for its first winning week in three on Friday after rebounding from a payrolls-induced sell-off, as investors continued to ponder the timing of a tapering of Federal Reserve stimulus.

The dollar index, which gauges the greenback against six major peers, was little changed on the day at 92.541, remaining on course for a 0.49% weekly rise.

Last Friday, it sank to the lowest since Aug. 3 after data showed the U.S. economy created the fewest jobs for seven months, reducing the odds of an imminent reduction of the Fed’s asset-purchase program.

Since then, a number of officials have come out to suggest a taper is still likely this year though, including Fed Governor Michelle Bowman, who said overnight that the weak August labor report won’t throw the central bank off course.

Data on Thursday showed that the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

“The Fed looks set to taper later this year, underscored by recent comments this week,” Mark McCormick, global head of FX strategy at TD Securities, wrote in a research note.

However, even with the trend toward monetary policy becoming less accommodative globally, financial conditions remain ultra-loose, which “binds how much room the USD has to run and favors selling rallies,” McCormick said.

The euro was flat at $1.18235 on Friday, on track for a 0.47% decline this week.

The single currency got some small measure of support overnight, after the European Central Bank said it would trim emergency bond purchases over the coming quarter, as widely expected.

In the past two quarters, the bank has bought around 80 billion euros worth of debt each month. It provided no numerical guidance for the three months ahead, but analysts had predicted before the meeting that purchases would fall to between 60 billion and 70 billion euros in those months.

“It was a big event for economists, not so much for traders,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note to clients. “The volatility was not there.”

Euro support at $1.18 “needs to give way for shorts to get any real traction here,” he said.

The dollar was little changed both on the day and for the week at 109.71 yen, still meandering in the middle of its range of the past two months.

The Aussie dollar slipped 0.07% to $0.7363, heading for a 1.16% slide this week.

Dollar marks one-week top amid higher U.S. yields, ECB caution

The dollar rose to a one-week peak against major peers on Wednesday, buoyed by higher Treasury yields and a weaker euro ahead of a European Central Bank policy decision.

The dollar index, which measures the currency against six rivals, ticked up 0.05% to 92.580, after earlier touching 92.590, a level not seen since Sept. 1.

The euro slipped 0.05% to $1.1836 for the first time since Sept. 2.

The greenback gained 0.08% to 110.385 yen, helped by higher U.S. yields.

The benchmark 10-year Treasury note rose as high as 1.385% on Tuesday for the first time since mid-July, a climb of almost 6 basis points from Friday’s close. Monday was a U.S. holiday.

The dollar index had tumbled to its lowest levels since early August at the end of last week, when a surprisingly soft U.S. payrolls report prompted speculation the Federal Reserve will forgo announcing a taper of stimulus at a policy meeting this month. At the same time, strong wage growth warned of the potential for inflationary pressures to grow.

This week’s dollar strength appears to be the result of a shift in investor focus to wage growth, which “suggests that the Fed may stick with its tapering plan,” Ken Cheung, a strategist at Mizuho Bank in Hong Kong, wrote in a report.

“We look for further upside for the USD.”

However, the surge in Covid-19 deaths in the United States could give the central bank pause. Reuters data shows that more than 20,800 people died from the virus in the past two weeks, up about two-thirds from the prior period. President Joe Biden will outline a plan to tackle the highly contagious delta variant on Thursday.

Investors will look to a speech by New York Fed President John Williams later on Wednesday for any hints on whether the labor market is still on the Fed’s stated path of “substantial further progress” needed for a taper.

St. Louis Fed president James Bullard told the Financial Times that the central bank should go forward with a plan to start trimming stimulus this year despite the jobs slowdown last month.

“Risk aversion in the air alongside the move up in UST yields have helped the USD extend its post-payrolls recovery,” Rodrigo Catril, a senior foreign-exchange strategist at National Australia Bank, wrote in a client note.

“Investors are wary of the ECB meeting on Thursday, anticipating a potential trim to the PEPP (Pandemic Emergency Purchase Program) bond-buying pace.”

Analysts polled by Reuters see PEPP purchases falling possibly as low as 60 billion euros a month from the current 80 billion, before a further fall early next year and the scheme’s end in March.

Elsewhere, the Reserve Bank of Australia’s decision on Tuesday to forge ahead with a taper of bond purchases while adding the dovish concession of extending the program to February, helped undermine the Aussie dollar. It slipped 0.07% to $0.73825 on Wednesday, extending the previous session’s 0.7% slide.

Canada’s loonie was mostly flat at C$1.2641 per greenback after tumbling about 0.9% overnight.

Lower oil prices weighed, while investors anticipate a dovish narrative from the Bank of Canada’s policy meeting later Wednesday following an unexpected economic contraction last quarter, NAB’s Catril said.

Meanwhile, cryptocurrencies struggled to rebound from hefty losses overnight, when several trading platforms said they experienced performance issues, although it was not clear if these were a contributor to, or a result of, the volatility.

Bitcoin slipped 1% to around $46,400 after sinking as low as $42,900.01 on Tuesday. Earlier that day it had touched an almost four-month high of $52,956.47.

Dollar finds footing as traders look to ECB

The dollar found support on Tuesday as investors awaited a European Central Bank meeting and U.S. data to gauge the policy outlook, while the Aussie blipped briefly higher after the Reserve Bank of Australia stuck with its tapering plans.

The greenback held the euro below $1.19 at $1.1872, was steady on the yen at 109.79 per dollar and drifted a little firmer on the Australian and New Zealand dollars at the end of the Asia session. The dollar index sat at 92.200.

The Reserve Bank of Australia stuck with plans to taper its bond buying but said it would extend the timeline as the economy struggles with coronavirus lockdowns, triggering a brief rise in the currency to $0.7469 before it eased back to support at $0.7420.

Traders said the next moves in currency markets probably depend on Thursday’s European Central Bank meeting and then on the next U.S. jobs update, in October, after a weak reading last week probably delayed any Federal Reserve tapering announcement.

“The next payroll report on Oct. 8 now looms very large as the main event in considering the timing of tapering,” said Natwest strategist John Briggs in a note to clients.

Tapering is also the focus for Thursday’s ECB meeting, with economists expecting some sort of slowdown in bond purchases but wobbles in the euro and a rising stock market are pointing to trading floors taking a slightly different view.

“If the ECB is going to taper that might provide some support for the euro,” said Moh Siong Sim, an FX strategist at the Bank of Singapore.

“But overall I don’t think it’s going to go hawkish – it’s going to…offset the tapering with a more flexible asset purchase program,” he said.

Elsewhere, sterling was marginally weaker at $1.3830 and the kiwi dipped slightly to $0.7117 with the Aussie late in Asia trade as the Aussie wound back its post-RBA jump.

The Central Bank said it would cut its bond buying by A$1 billion a week to A$4 billion, though it also extended the programme to at least mid-February which was seen as a dovish concession as lockdowns stall Australia’s economic recovery.

“For the most part you’d generally regard them as being quite optimistic on the growth prospects for the next year or so, but we shouldn’t forget it’s dovish guidance on the cash rate,” said Sean Callow, currency analyst at Westpac.

“This reversal in the Aussie shows that it is fragile and it’s going to be hard work to get to $0.75.”

Elsewhere, China’s August trade data were strong and lent support to the yuan, which has faced some pressure from growing expectations of monetary easing.

Also on the radar this week is the Bank of Canada meeting on Wednesday, where it is expected to keep rates steady but brush aside a surprise contraction in the economy in the second quarter to keep on track for a hike this year.

The Canadian dollar softened a tiny bit to C$1.2543 on Tuesday, but it remains near multiweek highs.

In cryptocurrencies, bitcoin and ether were steady at $52,736 and $3,927, respectively.

Dollar near one-month low on bets for later Fed taper

The dollar languished near a one-month low versus major peers on Monday, as investors pushed back expectations for when the Federal Reserve will begin tapering its massive stimulus.

The dollar index, which measures the currency against six rivals, edged 0.05% higher to 92.155, after dipping to 91.941 for the first time since Aug. 4 on Friday, when a closely watched U.S. labor report came out much weaker than expected.

The euro was flat at $1.18775 after matching the highest level since June 29 at $1.1909 at the end of last week. The single currency has been supported by expectations the European Central Bank, which meets Thursday, is close to tapering its own stimulus program.

The greenback edged 0.1% higher to 109.79 yen, still meandering in the middle of its trading range of the past two months.

U.S. nonfarm payrolls increased by just 235,000 in August, compared with a 728,000 median forecast by economists in a Reuters poll, as a resurgence in Covid-19 infections weighed on demand at restaurants and hotels, and stalling hiring.

The Fed has made a labor market recovery a condition for paring back its pandemic-era asset purchases.
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Commonwealth Bank of Australia pushed back expectations for a start to tapering to December from October following the jobs miss.

“The U.S.’s deteriorating Covid situation will weigh on the USD because the situation is better elsewhere in the major economies,” CBA strategists wrote in a client note.

Australia’s dollar weakened 0.17% to $0.7435, but remained close to its highest since July 15 of $0.74775, touched in the previous session. The Reserve Bank of Australia decides policy on Tuesday.

National Australia Bank predicts the central bank will reduce asset purchases again at the meeting, “although the optics of tapering amid protracted lockdowns means it is likely to be a close decision,” NAB analyst Tapas Strickland wrote in a report.

New Zealand’s kiwi slipped 0.07% to $0.71445, after rising as high as $0.7170 on Friday for the first time since June 11.

Following strong two-week rallies, both the Aussie and kiwi “appear to have firmly broken out of recent ranges,” Strickland said.

In cryptocurrencies, bitcoin was about flat at $51,785.60, after earlier touching $51,920, a level not seen since May 12.

Smaller rival ether traded little changed at $3,942.77 after topping $4,000 last week for the first time since mid-May.

Dollar near one-month low as payrolls test looms

The dollar sank to its lowest in almost a month against major rivals on Friday, ahead of a crucial U.S. jobs report that could spur the Federal Reserve to an earlier tapering of stimulus.

The dollar index , which measures the greenback against six peers, slipped 0.04% to 92.193 after earlier touching 92.189 for the first time since Aug. 5.

The euro edged up 0.02% to $1.1878, after hitting the highest since Aug. 4 at $1.1880.

The U.S. central bank has made a labor market recovery a condition for paring pandemic-era asset purchases.

The dollar had been strengthening for most of last month on the view that a taper could be imminent, even as Covid-19 cases spiked in the United States, which paradoxically gave the currency an additional boost because of its role as a safe haven.

But the dollar index retreated after hitting a 9 1/2-month high of 93.734 on Aug. 20 as Fed officials began suggesting the virus’ spread could delay policy tightening.

Chair Jerome Powell said at the Fed’s Jackson Hole symposium a week ago that a taper was still possible this year, but there was no hurry to subsequently raise interest rates, sending the dollar down further.

Monthly non-farm payrolls, due later Friday, are expected to rise by 750,000, with the unemployment rate falling to 5.2% from 5.4%, according to a Reuters poll of economists. However, estimates range widely, from as little as 375,000 to over a million.

Signals from the economy ahead of the report have been mixed. Overnight, data showed layoffs dropped to their lowest in more than 24 years. However, the ADP National Employment Report on Wednesday was much weaker than economists expected.

Commonwealth Bank of Australia forecasts the United States added 800,000 jobs last month, which it says would be enough to spur the Fed to taper, although the bar for an announcement at this month’s meeting has been raised by the current outbreak.

“The risk is uncertainty associated with the virus stands in the way of an imminent taper announcement,” which would reverse any dollar gains from a strong payrolls report, CBA strategists wrote in a client note.

The Australian dollar was little changed at $0.74005 from Thursday, when it reached the highest since Aug. 5 at $0.74095.

The New Zealand dollar was about flat at $0.71145 after rising to the highest since June 16 at $0.7120 in the previous session.

The greenback was little changed at 109.915 yen , holding near the center of its trading range since early July.

Dollar pinned near three-week low as U.S payrolls test looms

The dollar traded near its lowest point in nearly three weeks versus major peers on Wednesday, with investors focused on a key U.S. jobs report due on Friday for clues on when the Federal Reserve might begin paring stimulus.

The dollar index, which measures the greenback against six rivals, edged higher to 92.777 from Tuesday, when it dipped as low as 92.395 for the first time since Aug. 6.

The U.S. currency was about 0.1% stronger at $1.18015 per euro, after touching the weakest since Aug. 5 at $1.1845 in the previous session.

“The USD uptrend is over for the time being at least,” after Federal Reserve Chair Jerome Powell successfully separated the debate over taper timing from any decisions about higher interest rates, Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, wrote in a client note.

“Positive price action” in the Australian and New Zealand dollars since their Aug. 20 lows suggests “a base has now been formed,” he said.

The Aussie was flat at $0.73115 after touching a more-than-two-week high of $0.7341 on Tuesday. It fell as low as $0.71065 on Aug. 20, a level not seen since early November.

New Zealand’s kiwi slipped 0.18% to $0.7035, but remained close to its highest since Aug. 5 of $0.70685, reached the previous day. It dipped to $0.6807 on Aug. 20, also a more-than-nine-month low.

The dollar index climbed as high as 93.734 for the first time in 9 1/2 months on Aug. 20, but has since sagged as commentary from Fed officials suggested a taper wasn’t imminent, beginning with Dallas Fed President Robert Kaplan, a well-known hawk, saying he might reconsider the need for an early start to tapering if the pandemic harms the economy.

Last Friday, Fed Chair Jerome Powell acknowledged in his speech at the Jackson Hole conference that tapering could begin this year, but added the central bank is in no hurry to raise interest rates.

“Powell’s speech didn’t really provide any new information, which leaves the market waiting for nonfarm payrolls this week,” with the dollar lacking any real direction, said Shinichiro Kadota, senior currency strategist at Barclays in Tokyo.

“The market is expecting solid employment growth to have continued in August, which should help the Fed to further the discussion on tapering,” boosting the dollar, he said.

The Fed has made a labor market recovery a condition for tapering.

This Friday, economists predict nonfarm payrolls likely increased by 750,000 last month, after rising 943,000 in July. The unemployment rate is forecast to fall to 5.2% from 5.4%.

Barclays is a little more bullish, anticipating 850,000 additional payrolls, and a jobless rate of 5.1%. Kadota forecasts the dollar will gain to 112 yen by year-end for the first time since February 2020.

The dollar rose 0.23% to 110.235 yen on Wednesday, but remained near the middle of the trading range that has prevailed since early July.

Dollar at 3-week lows as traders await tapering clues

The dollar was trading near three-week lows against a basket of currencies on Tuesday, as investors looked to U.S. jobs figures later this week for clues on stimulus taper timing.

The greenback has been on the back foot since Federal Reserve Chair Jerome Powell’s comments at the Jackson Hole conference on Friday that the U.S. central bank could scale back its bond-buying program this year but did not give a firm timeline.

U.S. payrolls numbers due Friday this week will be closely watched, analysts said.

“Powell made clear on Friday that the Fed believes the ‘substantial further progress’ criteria has been met for inflation but not for employment and hence the jobs data will continue to be key for policy expectations,” analysts at MUFG said in a note.

Trade on Tuesday will also likely be driven by month-end flows from businesses for their import and export transactions, traders said.

The dollar index slipped a quarter of a percent to 92.456, its lowest level since August 6.

The euro gained 0.3% against the broadly weaker dollar, hitting a three-week high of $1.18315.

Sterling strengthened to a two-week high of $1.38010, before slipping back below $1.38.

The yen was little changed at 109.85 yen to the dollar.

The New Zealand dollar strengthened 0.9% to $0.70560, a day after the country’s prime minister Jacinda Ardern partially eased lockdown restrictions outside of Auckland.

The offshore Chinese yuan slipped versus the dollar, but was largely steady after soft factory and service sector surveys.

“The drop in the non-manufacturing PMI reflects the impact of the coronavirus. But the infections in China has already peaked and dwindled,” said Ei Kaku, senior strategist at Nomura Securities.

In cryptocurrencies, bitcoin gained 1.6% to $47,752, regaining some of the previous day’s losses.