Dollar little changed ahead of U.S. inflation data

by Jonathan Adams
dollar index

The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday

The dollar was little changed against other major currencies on Tuesday as investors looked to U.S. inflation data later in the session for clues on the timing of policy tightening measures by the Federal Reserve.

The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday while the euro changed hands at $1.18105, having rebounded from Monday’s low of $1.17705, its lowest level since Aug. 27.

An immediate focus is on U.S. consumer price data due at 1230 GMT.

Economists expect core CPI to have grown 0.3% in August from July. Its annual inflation is seen easing slightly to 4.2% from 4.3% in July.

Overall consumer price inflation is expected to drop slightly to 5.3% from 5.4% in July.

With the core CPI still seen above 4%, inflation is at a very abnormal level. Powell has been saying inflation will be transient since March but the Fed will probably have to adjust its wording in the next policy statement, said Yukio Ishizuki, senior strategist at Daiwa Securities.

The Fed will hold its policy meeting next week. The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November.

Tapering this year is a done deal. The next question will be whether the Fed will raise interest rates next year. Given persistent inflation, the Fed may not be able to afford to be relaxed about it for too long, Ishizuki said.

The yen eased slightly to 110.005 yen to the dollar but stayed around 110 over the past few weeks.

Limited moves in the currency pair saw traders reducing expectations for market swings.

Implied volatilities on dollar/yen options have dropped to historic levels, with one-month volatility declining to 4.625%, its lowest since February last year just before the pandemic.

For now, risk-sensitive currencies were little moved, with sterling at $1.3836 and the Australian dollar at $0.7362.



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