Dollar is largely unchanged ahead of the Fed meeting
The greenback was largely unchanged in early European trade Monday. Meanwhile, traders are showing caution ahead of the latest two-day meeting of the Federal Reserve.
The U.S. dollar index, which measures the dollar against a basket of six other currencies, declined to 90.483. Significantly, it was trading more than 0.5% higher last week.
Recent data, which revealed a rise in inflation, has increased concerns that price pressures following the post-pandemic economic reopening could force policymakers to taper stimulus earlier than expected.
The dollar against the Japanese yen gained 0.1% and traded at 109.76. Meanwhile, The British pound against the greenback gained 0.1% to 1.4112. The euro declined to 1.2104 against the American currency. Remarkably, in the previous session, the euro hit an almost one-month low of 1.2093. The risk-sensitive Australian dollar gained 0.1% and traded at 0.7711.
The U.S. dollar witnessed some gains last week after the U.S. consumer price index increased by 5% year-on-year in May. Remarkably, it is the sharpest boost in more than a decade, which raises the fears the Fed will be forced into reining in its ultra-easy monetary policies earlier than anticipated.
However, it’s essential to mention that those gains were limited as policymakers repeatedly say that inflation would be short-lived.
Moreover, as employment boosted by 559,000 in May (less than economists anticipated), Fed officials may be close to giving clues on the timing for slimming its asset-purchase program.
40% anticipate the Fed to take its first step in late August
A Bloomberg survey revealed that some 40% anticipate the Fed to take its first step toward tapering its current $120 billion in monthly bond purchases in late August. This will happen by the time Chair Jerome Powell hosts a policy retreat in Jackson Hole, Wyoming. Meanwhile, another 24% see that happening next month.
The British sterling was the biggest loser among developed currencies on news that the UK was set to delay the end of social distancing measures as the government works to slow a rapid increase in coronavirus cases.
Additionally, the Russian Ruble rose by 0.4% and traded at 72.0205 after Russia’s central bank lifted its key interest rate by 50 basis points to 5.5% on Friday.
Governor Elvira Nabiullina announced the board had considered an even bigger increase of 75 or 100 basis points. She added that another rate hike was highly anticipated when they next meet on July 23.
In the cryptocurrency market, the dominant cryptocurrency, Bitcoin, traded above $39,000. On Sunday, Bitcoin gained almost 10% when Tesla CEO Elon Musk announced that his company will continue allowing transactions when miners who verify transactions use more renewable energy.
