Dollar broadly steady as investors weigh rate projections

by Jonathan Adams

Last week, the U.S. Federal Reserve stuck to its view that current high inflation is expected to be transitory

The dollar was broadly steady on Monday and currency markets lacked momentum as investors weighed up volatile rate projections and central banks’ tolerance of inflation.

Last week, the U.S. Federal Reserve stuck to its view that current high inflation is expected to be transitory.

The next test of this wait-and-see approach to inflation will be U.S. CPI data due on Wednesday.

At 0853 GMT, the dollar index was little changed on the day at 94.229, holding below the 15-month high hit on Friday following stronger-than-expected U.S. jobs data.

The tightening labour market will keep pressure on the Fed to keep tightening policy going forward, and speed up rate hike plans if labour force participation does not improve as expected, MUFG strategist Lee Hardman wrote in a note to clients.

Commodity Futures Trading Commission data showed speculators scaled back their net long position on the dollar for the fourth week running in the week to Nov. 2.

Federal Reserve Vice Chair Richard Clarida will speak about inflation and monetary policy later in the session.

We have heard a few Fed hawks questioning the need for patience when it comes to tightening, but similar remarks from centrists like Clarida would certainly send US short-term rates and the dollar higher, ING FX strategists wrote in a note to clients.

The Australian dollar, which is seen as a liquid proxy for risk appetite, was down 0.1% on the day at $0.73992.

The New Zealand dollar was up 0.2% at $0.71395, boosted by Prime Minister Jacinda Arden announcing that lockdown measures will likely be phased out by the end of the month.

The euro was a touch higher, up 0.1% at $1.1573.

Euro zone inflation will ease next year and remains too weak in the medium term, European Central Bank (ECB) chief economist Philip Lane told a Spanish newspaper, repeating the bank’s long-standing message that high price growth is temporary.

Elsewhere, China’s export growth beat economists’ forecasts in October, while imports missed expectations, resulting in a record trade surplus.

But the yuan was steady versus the dollar, holding just under the key 6.4 level.

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