A businessman is seen holding a stack of American banknotes.
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The dollar sagged to the low end of its recent range on Tuesday, as weaker-than-expected US data and new insistence by Federal Reserve officials that policy would remain on hold allayed investor fears over inflation forcing interest rates to rise.
Investors are seriously strapped for dollars in the belief that low U.S. rates will bring liquidity overseas as the world recovers from the pandemic. They became reluctant to add positions after a surge in inflation in April that cast doubt on the political outlook, but seemed to find solace in the Fed’s data and remarks overnight.
Early Asia trade was flat, with the dollar index losing overnight 0.2% to 89.853 – just above a four-month low. The euro posted a 0.3% gain overnight and, at $ 1.2213, is close to testing resistance around $ 1.2245.
“The markets appear to be moving closer to the Fed’s rhetoric that a surge in inflation is likely only temporary,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney. “A temporary price spike should not lead to the removal of central bank stimulus policies.”
The US National Activity Index of 0.24 versus expectations above 1, along with dovish comments from Fed speakers supported the idea that any policy tightening is not going to happen anytime soon.
“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do that while we are still in the pandemic,” said James Bullard, chairman of the Federal Reserve Bank of St. Louis says overnight.
The benchmark 10-year Treasury yield fell 2.4 basis points to a two-week low of 1.608%, and the dollar also eased against the Australian and New Zealand dollars and the yen.
The yen was last at 108.79 per dollar as the Aussie and the Kiwi drifted towards the middle of the ranges that have held them since April. The Australian bought $ 0.7750 and the kiwi $ 0.7211.
The British pound, which has gained around 1.2% over the past three weeks while other majors have stabilized – or even slipped – was stuck at $ 1.4160.
Traders focus on inflation, the policy response to inflation, and any data or remarks that might shed some light on either, as huge bets on stocks, bonds, and currencies all hinge on the assumption that low rates are here to stay.
“The whole world is on a wait-and-see mode,” said Stuart Oakley, head of spot currency trading at Nomura in London, who has cut his own trading in the face of uncertainty.
“The next few months are going to be crucial for FX, just depending on when the Fed starts talking about tapering, and that depends 100% on how the data is going to work this month and next month,” he said. he declared. “As soon as we have a suggestion that some of these stimuli (have) moved, then everything is going to change drastically.”
On Tuesday, a survey of German businesses, a series of housing updates in the United States and a handful of speeches from policymakers in Europe, Britain and the United States will be analyzed for a read on inflation. .
Crucial consumer price data in the United States is expected on Thursday, while in the Antipodes the focus will also be on Wednesday’s Reserve Bank of New Zealand policy statement, with a risk that it begins to plan rate hikes.
Crypto markets were flat in Asia after making their best attempt at a rebound from last week’s lows. Bitcoin rose 12% on Monday and, at $ 39,600 on Tuesday, is set to regain its 200-day moving average.