Dollar drops as technical selling weighs

by Jonathan Adams
Dollar

The U.S. Dollar Currency Index, which tracks the greenback against six major currencies, was down 0.2% at 94.791, its lowest since Nov. 10

The dollar dropped against a basket of currencies on Thursday to a two-month low, a day after data that showed an expected surge in U.S. consumer prices in December fell short of offering any new impetus for the Federal Reserve’s policy normalization efforts.

The U.S. Dollar Currency Index, which tracks the greenback against six major currencies, was down 0.2% at 94.791, its lowest since Nov. 10. The index, which gained 6.3% in 2021, is down nearly 1% for the week, on pace for its worst weekly performance in nearly eight months.

Coming into the new year the dollar positioning was very much skewed to being long, said Mazen Issa, senior FX strategist at TD Securities.

Yesterday’s inflation numbers, in conjunction with Fed Chair Jerome Powell’s testimony for his nomination hearing, were basically just in line with what markets had already positioned for, Issa said. There wasn’t anything materially new.

December’s monthly U.S. consumer inflation figures, published on Wednesday, were a fraction higher than forecast and the increase in year-on-year consumer prices was, as expected, 7% – its biggest jump since June 1982.

Nevertheless, traders do not see these inflation readings as urgently shifting an already hawkish Fed too much. With at least three interest rate hikes already in the market price, some investors pared bets on further dollar gains.

Powell on Tuesday gave no clear indication that the Fed was in a rush to speed up plans for tightening monetary policy, putting some downward pressure on the greenback, which has benefited in recent weeks from expectations for a rapid pace of policy normalization.

U.S. producer price inflation slowed in December as the cost of goods fell amid signs that stretched supply chains were starting to ease, hopeful signs that inflation has probably peaked.

As continued high inflation eats further into Americans’ pocketbooks, Federal Reserve Governor Lael Brainard on Thursday became the latest, and most senior, U.S. central banker to signal that the Fed is getting ready to start raising interest rates in March.



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