Dollar Steadies Ahead of Inflation Data, Fed Officials Speak
The United States dollar was only slightly changed against its major trading partners with the notable exception of the yen, ahead of the release of October producer price data Tuesday morning and more speeches from Federal Reserve officials, including Fed Chairman Jerome Powell, throughout the day.
Data on October consumer prices will be released on Wednesday. Read Also: UK Inflation to Rise Sharply for Next Six Months, Says Fitch
Monday’s long-list of Fed speeches broke little new ground. In summary, the Fed remains conscious of the elevated rate of inflation and will act if needed, but also believes that inflation will slow as supply chain constraints ease, giving the FOMC room to be patient before raising interest rates.
Fed Chair Powell said last week that it is possible that the Fed’s “maximum employment” mandate could be satisfied in the second half of 2022. This would follow the expected conclusion of asset purchase tapering in the summer, clearing the way for the first liftoff of rates by the end of next year.
The Fed’s Vice Chairman, Randal Quarles, announced Monday that he would resign at the end of the year. Quarles had faced some criticism about his handling of banking regulation during his tenure as Vice-Chair for Supervision and is likely to be replaced by someone who believes enhanced oversight is needed.
A quick summary of foreign exchange action heading into Tuesday shows that USD-CAD slipped modestly to 1.2436 from 1.2442 at the Monday US close and 1.2446 a day ago, as the positive effects of the strong US employment report on Friday continued to fade.
Yields moved lower as markets read the Fed speak Monday as suggesting that the Fed may not consider the first rate hike until later in 2022 if their employment and inflation forecasts evolve as expected.
The Bank of Canada remains in the lead after ending its quantitative easing (QE) program entirely and hinting that rates hikes could begin sooner than expected. Fed and Bank of Canada speakers make several appearances on Tuesday.
USD-JPY slipped to 112.9522 from 113.2358 at the Monday US close and is well below the 113.4571 level a day ago. Declining US yields, bringing them closer to Japan’s, has pulled the pair lower over the last day.
Stronger US inflation readings over the next few days could change the direction but markets are currently focused on the prospect of further fiscal measures in Japan that could jump-start the lagging economy.
GBP-USD moved slightly higher to 1.3571 from 1.3566 at the Monday US close and 1.3512 a day ago. With the Bank of England choosing to put off rate increases until future meetings, the BOE and the Fed seem to be on similar wait-and-see tracks, with the BOE leading the way.
However, US inflation reports Tuesday and Wednesday could give the dollar a boost if they come in ahead of expectations.
EUR-USD remained in its tight range, slipping only modestly to 1.1581 from 1.587 at the Monday US close, though it remained ahead of the 1.1574 level a day ago.
As with the Fed and Bank of Canada, officials from the European Central Bank will also be speaking on Tuesday.
The ECB’s relatively dovish monetary policy stance compared with the Fed and the Bank of England, as well as rising COVID cases in several European countries, will likely cap the upside for the pair. #Dollar Steadies Ahead of Inflation Data, Fed Officials Speak
