Dollar Trades Stronger as Market Awaits Inflation Data
The US dollar was firmer against its major trading partners early Wednesday, apart from the Canadian dollar, as the Bank of Canada meeting’s policy announcement is due early in the day.
Markets are looking forward to Friday’s US consumer price index inflation report and preparing for the possibility of another large price increase ahead of next week’s Federal Open Market Committee’s meeting. However, the dollar index has been trending better as Omicron fears fade.
The data schedule is light Wednesday, with the monthly job openings and labour turnover survey, or JOLTS, report and the weekly oil stocks the key releases.
Earlier, the Mortgage Bankers Association reported a partial rebound in weekly mortgage applications after a sharp decline in the previous week, fueled by a small decline in mortgage rates.
There are no Federal Reserve speakers this week due to the quiet period before the Dec. 14-15 FOMC meeting, so the data schedule and news on the progression of the omicron variant of the coronavirus will shape expectations for a faster pace of tapering.
A quick summary of foreign exchange action heading into Wednesday shows that USD-CAD fell further to 1.2621 from 1.264 at the Tuesday US close and 1.2682 a day ago.
The highlight for the pair Wednesday will be the Bank of Canada’s policy decision, where the dual impacts of strong economic numbers, most recently for employment, and the omicron variant are expected to net no change in interest rates but a more upbeat language in the post-meeting statement.
USD-JPY gained some ground, rising to 113.6934 from 113.5718 at the Tuesday US close and from 113.5514 a day ago. Japan’s Q3 gross domestic product fell slightly after a downward revision due to a larger consumption decline than previously estimated.
There is an optimistic outlook for the economy, however, as COVID cases have begun to ease with rising vaccination rates and fiscal stimulus is seen close to being finalized.
GBP-USD fell to 1.3196 from 1.3243 at the Tuesday US close and the 1.3251 level a day ago. The shift to risk-taking has benefitted the dollar, along with the realization that the Bank of England’s awaited December rate hike will need to wait until early-2022 due to the uncertainty of rising COVID cases.
EUR-USD was virtually unchanged from the Tuesday US close, ticking up to 1.1271 from 1.1269, but is up from the 1.1254 level a day ago.
While the omicron variant appears to be no worse than the delta variant at this point, there are enough cases of both in continental Europe to keep restrictions in place. # Dollar Trades Stronger as Market Awaits Inflation Data

