Dollar drifts near two-week low ahead of U.S. inflation data. The Federal Reserve’s next course of action will be influenced by U.S. inflation figures, which will be released on Thursday. A day earlier, the Federal Reserve’s previous meeting’s minutes, which were released, revealed that policymakers were adopting a cautious approach.
The dollar index, which compares the dollar value to six rival currencies, was at 105.63, essentially unchanged from the previous day but not far from 105.53, its lowest level since September 25 was reached earlier in the day.
The approaching inflation statistics prevented significant movements in the euro and yen versus the dollar, both stable at $1.06245 for the euro and 149.13 for the JPY. At 12:30 GMT, the United States will release statistics on its consumer price index for September, which should reveal that inflation slowed down in August.
According to Carol Kong, a currency strategist at the Commonwealth Bank of Australia, a downward surprise to inflation will probably bolster the argument that the Fed has concluded its tightening cycle, which would drive down U.S. Treasury rates and the dollar. “On the flip side, an upside surprise will likely encourage markets to reprice higher the chance the (rate setting) Federal Open Market Committee will follow through on its projected 25 basis point hike.”
According to the CME FedWatch tool, futures markets are pricing in a 26% possibility of a 25 basis point (bps) hike at the Fed’s December meeting, but just a 9% chance of a 25 bps rise at the central bank’s subsequent meeting in November.
As bond prices increased in response to the Fed’s dovish outlook on future rate rises, the dollar has recently weakened due to falling Treasury rates. Bond yields follow a different path than their price.
The 10-year Treasury note yield decreased slightly to 4.575%. Last week, at 4.887, it reached its highest level since 2007, but this week it is down about 20 bps. Slow British GDP numbers, which indicated the economy only partially recovered in August following a steep decline in July, were also a factor for currency investors on Thursday. The pound initially showed little reaction, but it last traded down 0.16% at $1.2295. Due to better-than-anticipated economic statistics and persistent inflation, which raised expectations that the Bank of England would continue raising rates longer than most peers, the pound had the strongest performance among the G10 currencies in the first half of this year.
After those variables turned around in September, it suffered its worst month in a year before stabilizing this month. “Without a growth pickup, inflation is likely to continue cooling back towards the BoE’s target, and a final rate hike this year looks risky given the current economic weakness,” said Nick Rees, FX market analyst at Monex Europe.
“F.X. markets appear of a similar view.” The CPI data will be released on Thursday following a conflicting report on American producer prices on Wednesday and the Fed’s September meeting minutes.
According to the minutes, Fed officials cited economic, energy, and financial market uncertainty as reasons to “proceed cautiously in determining the extent of additional policy firming that may be appropriate.” 0.90155, the Swiss franc was marginally stronger on the day and on track for its seventh straight day of gains—the longest such run since July 2020.
