Dollar marooned as investors shrug off inflation spike

After a week of anxious waiting, markets got the high U.S. inflation number they dreaded, then shrugged it off and moved on — leaving the U.S. dollar under pressure and most majors stuck in ranges.

Early in the Asia session the greenback nursed small losses, as traders figured there were enough one-offs in last month’s 0.6% rise in consumer prices to support the Federal Reserve’s insistence that inflation was likely to be transitory.

The dollar bought 109.44 yen and was headed for a small weekly loss. It was also on track for modest weekly losses on the Aussie dollar and British pound, last trading at $0.7752 per Aussie and $1.41825 per pound.

A dovish commitment from the European Central Bank to stick with its elevated tempo of bond buying held the euro in check at $1.2189.

“What we’re seeing is a market that believes in the Fed,” said Chris Weston, head of research at broker Pepperstone in Melbourne, as investors temper worries that the strong recovery in the United States prompts early rate hikes.

“We’re going to get tapering,” he said. “But it’s going to get done a such a snail’s pace.”

The data overnight showed U.S. consumer prices up 5% year-on-year, the sharpest rise in more than a dozen years and core inflation surging 0.7% in a month.

But hefty contributions from short-term rises in airline ticket prices and used cars helped convince traders it was not going to drive interest rates higher any time soon.

“It basically fit the Fed script, that we’d get a burst but it’s going to be temporary,” said Westpac currency analyst Imre Speizer.

“This report is consistent with that, it doesn’t argue against it. I think the market needed something that argued against it to push the U.S. dollar higher.”

The U.S. dollar index fell slightly after the inflation figures were published and last sat at 89.974, down very slightly for the week.

Benchmark 10-year U.S. Treasuries actually rallied to a three-month high in the wake of CPI, as short sellers quit bets on rising yields.

The 10-year yield was last at 1.4434% after dipping to a three-month low of 1.4320% earlier Friday. It was as high as 1.6350% a week earlier.

Focus now turns to the Fed’s meeting next week, although traders now say that there may not be much of a shift in rhetoric which has played down the need to taper stimulus.

A plan for reducing bond buying is expected to be announced in August or September a Reuters poll of economists found, but it isn’t forecast to begin until next year.

The South Korean won firmed 0.2% to 1,110.08 per dollar after the central bank governor hinted at normalizing policy, in an advance copy of a speech to be delivered later on Friday.

Indonesia’s rupiah gained about 0.4% to 14,187 per dollar as lower U.S. Treasury yields boosted the attraction of Indonesian bonds.

Cryptocurrencies looked to close out the week on a stronger footing, with bitcoin seemingly well supported above $35,000 despite more talk of global regulatory scrutiny.

The digital token last traded at $37,163.52 and on track for a 3.5% weekly advance.

Dollar stuck near 5-month low as caution reigns ahead of U.S. CPI, ECB tests

The dollar continued to hover near a five-month low versus major peers on Thursday as investors looked to key U.S. inflation data and a European Central Bank meeting later in the day to potentially set the direction for currency markets.

Investors have adopted a wait-and-see attitude all week, sucking volatility from the market and leaving major currencies mostly range-bound.

The dollar index has fluctuated narrowly around the psychologically important 90 level, and was last at 90.137.

The euro rose to a one-week high at $1.2218 on Wednesday only to finish little changed, and was essentially flat at $1.2178 in Asia.

The yen traded at 109.62 per dollar, also little changed from Wednesday and near the middle of the 109.19-110.325 range of the past two weeks.

Deutsche Bank’s Currency Volatility Index languished at its lowest level since February 2020.

The U.S. Labor Department’s consumer prices data has been much anticipated after last month’s report showed consumer prices increased by the most in nearly 12 years in April.

That has stoked bets that higher prices could last longer than some anticipate, potentially calling into question the Federal Reserve’s insistence that current inflation pressures are transitory and monetary stimulus should stay in place for some time yet.

Economists polled by Reuters estimated the CPI advanced 0.4% in May.

While the greenback has kept to tight ranges in the run-up to the report, benchmark 10-year Treasury yields — which helped drive the dollar index to a multi-year high earlier this year — has taken a sizeable step lower in the past week and was at 1.4874% in Asia from as high as 1.6350% on Friday.

“It feels like the balance of risk is tilted to the upside on U.S. CPI versus the consensus, which would favour a sell-off in Treasuries – (and thus) higher yields – and subsequently a stronger USD,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a note to clients.

“Bonds seem overbought.”

With the ECB, investors will be watching for any clues of an imminent slowdown to its bond-buying program.

While the ECB is widely expected to keep policy settings steady, the euro could be sensitive to changes in the bank’s economic forecasts or any signal that the pace of bond buying could be reduced in months ahead.

In crypto markets, bitcoin held gains from its biggest rally in four months on Wednesday, when it jumped nearly 12%. It last traded little changed at $37,097.02, after rebounding from a three-week low of $31,025 hit on Tuesday when signs of institutional investor caution and regulatory attention drove selling.

Dollar subdued as investors look to key U.S. inflation gauge

The U.S. dollar was subdued on Tuesday as investors looked to U.S. inflation data due later in the week after softer-than-expected jobs data quelled expectations of an early tapering in the Federal Reserve’s stimulus.

The euro fetched $1.21915, bouncing back from its three-week low of $1.2104 set on Friday while the dollar eased to 109.26 yen, losing steam after having hit a two-month high of 110.325 late last week.

The dollar’s index against a basket of six major currencies stood at 90.021, not far from 89.533, a 4 1/2-month low touched late last month.

“It’s not that the payrolls numbers were weak. But because so much expectation had been build up in advance, the dollar suffered a bit of setback,” said Shinichiro Kadota, senior currency strategist at Barclays.

Friday’s jobs data, which showed U.S. non-farm payrolls increasing by 559,000 in May, fell 90,000 jobs short of expectations.

The data helped to pin down U.S. bond yields near their recent lows, weighing on the dollar, while investors now looked to consumer price data on Thursday for fresh direction.

Many investors now expect the Fed to unveil a plan to reduce its bond purchase later this year, and actual tapering to start early next year.

The British pound hardly budged at $1.4169 while the Australian dollar was unchanged at $0.7753, both stuck in ranges seen over the past couple of months.

With recent trading ranges tight, implied volatilities on both currencies have dropped to their lowest levels since early 2020, before markets were pummeled by the COVID-19 pandemic.

Elsewhere, the Mexican peso held firm at 19.832 to the U.S. dollar, near its highest level since late January, after midterm elections confirmed President Andres Manuel Lopez Obrador’s MORENA party as the strongest force in the country, but with a reduced majority.

In contrast, the Peruvian sol tumbled to an all-time low of 3.9367 per dollar as socialist Pedro Castillo edged ahead of right-wing rival Keiko Fujimori in the country’s presidential election vote.

Cryptocurrencies were also little moved. Bitcoin traded flat at $33,564, while ether stood at $2,581.

Dollar edges up, recovering from jobs miss

The dollar edged up as European markets opened on Monday, recovering from Friday’s drop on U.S. jobs data which was below expectations.

The jobs data was seen as a relief for markets because it showed a pick-up in job growth was not strong enough to raise expectations for the U.S. Federal Reserve to tighten its monetary policy any sooner, hurting the dollar.

There was little risk appetite in currency markets in early trading, as equities dipped amid caution in global markets ahead of U.S. inflation data and the European Central Bank meeting, both on Thursday.

At 0715 GMT, the dollar index was up 0.2% on the day at 90.283. The euro was down 0.2% against the dollar, at $1.21465.

The Australian dollar, which is seen as a proxy for risk appetite, was 0.2% lower at 0.7727.

Dovish rhetoric from ECB policymakers suggests the bank is in no hurry to slow the pace of buying under the 1.85 trillion euro ($2.24 trillion) Pandemic Emergency Purchase Programme (PEPP).

Meanwhile U.S. Federal Reserve policymakers have begun inching toward a discussion about winding that help back.

“A divergence has opened up recently between the ECB and Fed who have signalled a willingness to discuss QE tapering at upcoming meetings,” MUFG currency analyst Lee Hardman wrote in a note to clients.

“It will help dampen upward momentum for EUR/USD. However, the developments are not sufficient to alter our bullish outlook the pair beyond the near-term.”

Speculators decreased their net short dollar positions in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

China’s yuan hovered around the key 6.40 level, with the offshore yuan changing hands at 6.3961 at 0732 GMT.

China’s export growth missed forecasts, while imports grew at their fastest pace in 10 years in May, fuelled by the surging demand for raw materials, data on Monday showed.

“In general, the trade sector continues the strong performance indicating that the manufacturing sector remains the leading role in the post-pandemic recovery,” wrote Commerzbank senior economist Hao Zhou in a note.

“However, the trade data might have little FX market impact, as the authorities vow to keep a stable currency for the time being.”

Elsewhere, the United States, Britain and other large, rich nations reached a landmark deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.

While investors were wary of how tech stocks would react, in terms of currency markets, ING strategists wrote in a note to clients that the plans for a minimum global corporate tax rate of at least 15% could result in a repatriation of global capital over a longer term which would be positive for the dollar.

“Our thoughts here are that the removal (of) tax havens could have implications for the hundreds of billions of dollars of cash parked overseas by US multi-nationals – reducing the incentives to keep cash overseas,” they said.

In cryptocurrencies, Bitcoin was up 1% around $36,166, while ether was up 2% at $2,766. Both were trading within the month’s relatively narrow ranges.

Dollar jumps as strong run of data turns all eyes to payrolls

The dollar was perched near multi-week highs on Friday, basking in its biggest gains in about a month after robust jobs data threw investors’ focus on to the strength of the U.S. recovery and on the possibility of it driving policy tightening.

The next test comes later in the day when U.S. non-farm payrolls data is published. The Street’s consensus forecast is for about 650,000 jobs to have been added in May, though the “whisper number” among traders is higher, closer to 800,000.

Private payrolls — a bit of an unreliable guide — delivered a big beat overnight with an increase of 978,000, against forecasts of 650,000, which sent the dollar rallying.

It lifted 0.7% to a three-week high of $1.2118 per euro and rose by the same margin to a two-month high of 110.32 yen. Gains topped 1% against the Aussie and the kiwi, which fell from recent ranges to their lowest in weeks.

China’s offshore yuan softened past 6.4 per dollar in early Asia trade, while other moves were only slight as markets now await the payrolls figures, due at 1230 GMT, with options trade showing it is expected to trigger volatility.

“Clearly traders are covering dollar shorts into the jobs data,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

He reckons, as a rough guide, that a million or more jobs might see the Aussie fall by another 1%, the euro drop about 0.8% and the dollar/yen exchange rate gain that amount as traders factor in a policy response to the strong economy.

“Between 250k-500k jobs and we’ll potentially see dollar/yen fall 0.6% to 0.8%,” Weston said. “A number in line will not give us much to work with, so the moves in the market will be dictated by the broad quality of factors – revisions to the April print of 266k, the unemployment rate, hourly earnings.”

At issue is whether the figure points to the sort of hiring that could reel in pandemic job losses, lift wages and drive broad U.S. growth that increases the trade deficit and weighs on the dollar – or whether things feel like they are overheating.

Positioning data shows investors heavily short dollars, leaving the market hypersensitive to any suggestion of a change in direction for the currency or a shift in the rates outlook – hence the options market is priced for a bumpy ride.

Overnight implied dollar/yen volatility shot up to a month high above 8% on Thursday and euro/dollar implied volatility hit its highest since mid-March.

Brian Daingerfield, head of G10 currency strategy at Natwest, sees a payrolls print around 550,000 as the “goldilocks” number: “strong enough to keep the recovery going but not strong enough to pull tapering fears forward.”

That could weaken the dollar broadly, he said, offsetting Thursday’s moves, while bonds could recover lost ground. Benchmark ten-year U.S. Treasury yields rose 3.6 basis points to 1.6300% overnight and opened near that level in Tokyo on Friday.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, rose 0.7% on Thursday to stand at a three-week high of 90.574 on Friday.

The Australian dollar was licking wounds at $0.7652, after falling to its lowest since mid-April overnight, while the kiwi was parked at $0.7136 after slipping to its cheapest since early May on Thursday.

Sterling was steady at $1.4099 in Asia after dropping through its 20-day moving average as the dollar climbed. The yuan fell to 6.4014.

Cryptocurrencies held on to several days of gains to leave bitcoin at $38,737 and on course for its best week in a month.

Dollar gives up gains for week as markets digest economic data

The dollar gave up gains from early on Friday as traders tidied positions ahead of month-end and a holiday weekend after seeing new economic data confirm expectations about U.S. inflation and the recovery from the COVID-19 pandemic.

The dollar index of major currencies rose as much as 0.4% during the day in a sharp rebound from 4-1/2 month lows plumbed on Tuesday before it fell back to flat for the day and the week at 89.99.

Ending with little change was a break from the down trend since March that had taken 3% from the dollar’s value as other major economies began to catch up with vaccination rates in the United States. At the same time, central banks in some other countries had appeared likely to move more quickly than the U.S. Federal Reserve to back away from easy money policies and let interest rates rise.

The euro was up a bare 0.05% at $1.22 on Friday afternoon, compared with a four-month high of $1.2266 earlier in the week.

The British pound was flat at $1.4199, continuing its recent struggle to stay above $1.42..

On Monday, the United States and Britain have public holidays.

The U.S. economic data had been seen as the big scheduled news of the week, but it did not move bond and stock markets much when it was released in the morning.

The data showed that consumer prices increased in April far beyond the Federal Reserve’s 2% annual rate target.

The inflation readings had been widely anticipated and were not expected to have an impact on policy from the Fed, which has viewed recent price increases as adjustments for the reopening of the economy.

The next big event for the markets is the Fed’s monetary policy meeting on June 15 and 16, which could provide clues to when U.S. interest rates will increase.

Fed officials could show projections for stronger economic growth. That would point toward the central bank tapering its purchases of bonds and allowing longer-term interest rates to rise, which would support the dollar, said Joseph Trevisani, senior analyst at FXStreet.com.

“The Fed is trying to prepare the markets for the inevitability of tapering,” Trevisani said.

The major currency that would most likely lose against the dollar is the Japanese yen, Trevisani said, citing trouble with Japan’s recovery from the pandemic compared with Europe and Britain.

The dollar gained against the yen early on Friday and hit a seven-week high before easing to show little change on the day. The dollar last traded around 109.77 yen after reaching as high as 110.2.

Japan has seen a rise in unemployment, falling consumer prices and government moves to extend emergency restrictions in Tokyo and other areas because of the COVID-19 pandemic.

China’s onshore yuan appreciated to as few as 6.358 per dollar, a new three-year high. The dollar was last trading at 6.3616 yuan, down 0.15% for the day.

Kenneth Broux, FX strategist at Societe Generale, said the fact that the yuan has been stronger than 6.40 for three days could be a turning point in Chinese policy that would be positive for the global economy.

“Nobody thought that the central bank would allow the yuan to strengthen beyond 6.40, and they have,” Broux added.

The New Zealand dollar, which this week had jumped on the prospect of an interest rate hike by September 2022, fell as much as 1% against the greenback early in the day..

In cryptocurrencies, bitcoin was down about 6% at $36,174 in the morning in New York, while ether was down 8% at around $2,510.

Dollar near 3-month low, weighed by Fed’s dovish tilt

The dollar stood near its lowest level in three months against a resurgent euro, and traders pared earlier bets the Federal Reserve may move soon to taper its stimulus though markets were not fully convinced that higher U.S. inflation is transient.

The dollar index, measuring the greenback against a basket of six currencies, was hovering at 90.045, a tad above a three-month low of 89.646 set on Friday.

Minutes from the Fed’s April policy meeting released last week showed a sizable minority of policymakers wanted to discuss tapering bond purchase on worries that pouring more money to an economy on the mend could stoke inflation.

Still, Fed Chairman Jerome Powell’s repeated comments that it is not yet time to discuss a reduction in quantitative monetary easing has led many investors to believe it will be months before the central bank actually tweaks policy.

“Inflation figures have been pretty strong but retail sales may be starting to slow down. And the economic outlook hinges on fiscal policy, which is still uncertain,” said Shinichiro Kadota, senior currency strategist at Barclays.

The White House said on Friday it had pared down its infrastructure bill to $1.7 trillion from $2.25 trillion, with cuts to investments in broadband and roads and bridges, but Republicans dismissed the changes as insufficient for a deal.

With investors pre-occupied with threats of accelerating inflation, U.S. PCE (personal consumption expenditures) data, due on Friday, is seen as one of the biggest tests for markets this week.

The euro traded at $1.2179, flat so far on Monday and off a three-month high of $1.2245 touched on Wednesday.

Some analysts said the currency was capped by comments from European Central Bank President Christine Lagarde on Friday that it is still too early for the bank to discuss winding down its 1.85 trillion euro emergency bond purchase scheme.

Still, the euro and other European currencies have been bolstered by rising optimism about economic reopenings in the region from coronavirus lockdowns.

A preliminary purchasing managers’ index covering the 19-country euro zone’s dominant service industry, published on Friday, bounced to 55.1 from April’s 50.5, well above expectations and its highest since June 2018.

“Although the U.S. led in economic reopenings in the first quarter, Europe is catching up and has further room for improvement, supporting the euro,” said Jun Arachi, currency strategist at Rakuten Securities.

In fact, speculators have been increasing bets against the dollar, preferring other currencies including the euro, in recent weeks.

Data from U.S. Commodity Futures Trading Commission released late on Friday showed speculators slightly increased their net short dollar positions in the latest week while raising long positions, both to their highest level since mid-March.

The British pound stood at $1.4144, off Friday’s three-month peak of $1.4233.

The yen was little moved at 108.92 per dollar, trapped between a high of 109.785 hit after a strong U.S. inflation data and a low of 108.34 in the wake of soft U.S. payrolls data, both touched earlier this month.

In the volatile cryptocurrency market, bitcoin dropped over 7% during the weekend to last trade up 2.4% at $35,528, having fallen to $31,107 at one point on Sunday.

Ether fell to a two-month low of $1,730 on Sunday, down 60% from a record peak hit just 12 days ago, and was fetching $2,178, up 3.8%.

Cryptocurrencies have tumbled after Elon Musk’s Tesla said it will stop accepting bitcoin and after China further clampdown on them.

Dollar heads for weekly loss as traders shrug off taper talk

The dollar was pinned near milestone lows on Friday, and headed for a weekly loss, as traders’ initial concerns at taper talk in Federal Reserve minutes ebbed — with actual tapering seeming distant — while pandemic recovery boosted other currencies.

On Wednesday, minutes from the April Fed meeting noted some committee members think that if the economy keeps improving, it might be appropriate, at upcoming meetings, to “begin discussing a plan for adjusting the pace of asset purchases”.

But after bouncing off a four-month low on the euro as the mere mention of tapering policy prompted fears of early rate rises, the dollar has dropped back and, at $1.2225 per euro, is again testing major support around $1.2345.

The dollar index is at 89.795, just a fraction above a three-month low of 89.686 struck before the Fed minutes were published. The index, which measures the greenback against six major currencies, is down about 0.6% for the week so far.

Against the yen the dollar was steady in Asia on Friday at 108.84, having dropped about 0.5% on the week. Cryptocurrencies have also staged a comeback, with bitcoin at $41,171 sitting some 37% above Wednesday’s low.

“It has been just over 24 hours since markets got spooked by the prospect of the U.S. Fed tapering its asset purchases, but having proverbially slept on it, the mood seems less sour today,” ANZ analysts said in a note. “Which seems reasonable – it’s not like the Fed is on the brink of wanting to actually act.”

A future discussion on tapering is also already reflected in the pricing of U.S. Treasuries and in money markets after the heavy selling of government bonds through February and March, limiting further dollar gains from the Fed minutes.

Benchmark 10-year Treasury yields fell to 1.6340% overnight and have range-traded between roughly 1.5% and 1.7% for two months, after jumping by more than 80 basis points in the first quarter of 2021. Fed Funds futures price the first full rate hike by January 2023.

“The world was, is and will remain awash with cheap dollars,” said Societe Generale strategist Kit Juckes.

“As long as the Fed is talking about talking about tapering, Treasuries are likely to remain stuck in their range and the dollar’s path of least resistance is to go on falling, albeit slowly.”

Elsewhere among major currencies, moves were slight as traders awaited retail sales data in Australia and Purchasing Managers’ Index figures across Europe.

The Australian and New Zealand dollars, which are near multi-year highs as lofty commodity prices and strong pandemic recoveries provide support, looked to close the week broadly steady.

The kiwi last bought $0.7198 and the Aussie $0.7773.

Sterling is perched close to its highest since 2018 as high vaccination rates support a stronger-than-expected economic recovery. Analysts said retail sales figures, as well as May PMIs later on Friday might deliver a further boost.

Sterling last traded steady at $1.4185.

Dollar bounces as Fed minutes revive tapering jitters

The dollar bounced off three-month lows against European currencies on Thursday after minutes from the Federal Reserve’s last policy meeting revealed there was more talk of tapering its bond purchases than investors had expected.

In the Fed minutes, several policymakers said that a discussion about reducing the pace of asset purchases would be appropriate “at some point” if the U.S. economic recovery continues to gain momentum.

That surprised investors, given Fed Chair Jerome Powell had said right after that meeting last month that it is not time yet to begin discussing any change in policy.

“The minutes contained wordings that appear to seek to start discussion on tapering at an earlier timing than expected,” said Takafumi Yamawaki, head of fixed income research at JPMorgan.

“If the next jobs data due on June 3 is strong, markets will start bracing for the Fed making a specific mention on tapering at its next meeting in June.”

The euro changed hands at $1.2174, flat on day after having slipped 0.4% in the previous session and off a three-month high of $1.2245.

The British pound slipped to $1.4104, down 0.1% so far on Thursday and slipping further from above $1.42 earlier this week while the Swiss franc eased to 0.90415 per dollar from Tuesday’s 0.89605, its highest in nearly three months.

The dollar rose to 109.15 yen from a one-week low of 108.575 yen touched on Wednesday.

The dollar’s index bounced back from Wednesday’s three-month low to 90.209.

The dollar has been declining over the past few weeks as key Fed officials have repeatedly said they were not ready to discuss reducing stimulus, judging spikes in inflation would be transient.

“It is worth noting that the FOMC Minutes predate the latest CPI and payroll/earnings numbers, so the fears of the minority on the FOMC are likely to have become a little more acute since the April meeting,” said Tapas Strickland, director of economics, markets at RBA in Sydney.

The Fed minutes lifted U.S. bond yields a tad, with the 10-year Treasuries yield at 1.671%, compared with around 1.65% just before the release of the minutes.

Still, yields have so far remained below their March peaks, in part capped by doubts over how aggressively a dovish Fed could move towards removing stimulus.

“Towards the summer, the U.S. has fiscal issues, and it is uncertain how big fiscal spending will be. It will be difficult for the Fed to make any moves without more clarity on fiscal policy,” said Minori Uchida, chief currency analyst at MUFG Bank.

“I’d think the dollar will gain on talk of tapering in the very near-term but I doubt it will last long,” he added.

Cryptocurrencies were volatile after suffering one of their biggest losses on Wednesday in the wake of China’s decision to ban financial and payment institutions from providing digital currency services.

Bitcoin last traded up 4.5% at $38,464, having fallen to as low as $30,066 on Wednesday, which represented a whopping 54% fall from its record high hit just over a month ago.

Ether stood almost flat at $2,470 after having plunged more than 10% to as low as $2,160 earlier. On Wednesday, it fell 22.8%, its biggest daily fall since March 2020.

Dollar left wounded, Fed minutes and inflation in focus

The U.S. dollar teetered near a six-year low against its Canadian counterpart and nursed losses against European currencies as expectations that U.S. interest rates will remain low undermined the greenback.

The minutes from the U.S. Federal Reserve’s most recent meeting due later on Wednesday are expected to confirm that policymakers think a rate hike is still in the distance.

Investors will also be scrutinizing consumer price data in Britain and Canada later in the trading day to determine how quickly major economies will be forced to rein in their accommodative monetary policy, which holds the key to the dollar’s trend in the medium term.