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The dollar gains a foothold as inflation weighs on the rate outlook

By on October 25, 2021 0

A Korea Exchange Bank employee counts 100 US dollar bills during a photo op at the bank’s headquarters in Seoul on April 28, 2010. REUTERS / Jo Yong-Hak

SINGAPORE, Oct. 25 (Reuters) – The dollar stabilized on Monday after its biggest weekly loss in more than a month, as traders assess the effect of inflation on the relative pace of impending rate hikes – with a cautious eye on US growth data and a European Central Bank meeting.

The greenback had eased, particularly against the yen, after Federal Reserve Chairman Jerome Powell said on Friday it was time to start cutting asset purchases, but not yet to start cutting. increase interest rates.

His remarks came as investors took into account the Fed’s rate hikes starting in the second half of next year and yet began to cut long dollar positions in anticipation that other central banks might. act even earlier.

On Monday, the dollar was firm at $ 1.1643 per euro and gained a foothold against the yen at 113.54 after falling on Friday. The Australian and New Zealand dollars were held below the multi-month highs they had climbed over the past week.

The antipodes, along with the British pound, had surged this month as traders rushed to set higher rates as inflation peaked, with markets now considering a near 60% chance of a hike from the Bank of England next week.

The British pound rose 0.1% to $ 1.3772, but analysts were cautious of further gains, especially as the Fed moves closer to cutting and tightening policy. The Aussie was flat at $ 0.7473 and the Kiwi at $ 0.7157.

“Dollar risks remain on the upside,” said Kim Mundy, currency analyst at the Commonwealth Bank of Australia in Sydney.

“Members (of the Fed) are slowly admitting that inflation risks are skewed upward (and) the result is that interest rate markets may continue to forecast a more aggressive Fed Funds rate hike cycle. who can support the dollar. “

This week, Australian inflation data due Wednesday should set the tone for the next stage of a standoff between traders and a decidedly conciliatory central bank.

On Thursday, US growth data is expected to show slowing growth as consumer confidence has weakened, but a surprise on either side could have ramifications for the interest rate outlook.

Also on Thursday, the Bank of Japan and the European Central Bank meet. Neither should adjust their policy, but in Europe, market indicators for projected inflation are at odds with the bank’s forecast. Read more

Behind the scenes, traders remain worried about the problems brewing at indebted developer China Evergrande Group (3333.HK). He surprised investors by avoiding default with a last-minute coupon payment last week, but more urgent debts are looming. Read more

The Chinese yuan held just short of a five-month peak in offshore trading at 6.3804 per dollar. Cryptocurrencies held steady below highs reached last week, with bitcoin up 2% to $ 62,000.

In emerging markets, the depreciated Turkish Lira was ready to be sold as state banks were expected to follow a surprise central bank rate cut. Read more

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Price of currency offers at 0110 GMT

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BOJ Tokyo Forex Market Information

Reporting by Tom Westbrook; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.