Dollar edges higher

The dollar rose in early European trading Monday, extending the previous session’s gains as reliable inflation data bolstered the case for tapering at the Federal Reserve meeting this week.

The Dollar Index was 0.1 percent higher at 94.243, just below Friday’s top of 94.302.

It comes on the heels of statistics released on Friday that showed the Fed’s preferred inflation measure, the core personal consumption expenditures index, growing at an annual rate of 4.4 percent in September, the fastest since 1991. The central bank meets for two days this week, culminating on Wednesday. However, the Fed’s persistent inflationary pressures have reinforced market expectations that the Fed will begin raising interest rates sooner than previously anticipated.

The influential financial bank Goldman Sachs (NYSE: G.S.) responded by moving the first U.S. interest rate hike forward after the epidemic by a year to July 2022. The fundamental reason for the change in our liftoff forecast is that estimate core PCE inflation to remain above 3% and core CPI inflation to remain over 4%.

Forex Market Overview

After Japanese Prime Minister Fumio Kishida’s ruling Liberal Democratic Party defied expectations and retained its substantial majority in Sunday’s legislative election, the USD/JPY traded 0.3 percent higher at 114.33, slightly below the highest level since Oct. It could imply that he now has more leeway to impose additional stimulus to help the battered economy at the expense of the yen.

GBP/USD fell 0.2 percent to 1.3659 ahead of the Bank of England meeting on Thursday, which could see the central bank raise interest rates if it believes the country’s economy is robust enough to withstand rising inflation. The AUD/USD pair was 0.3 percent lower at 0.7502, having fallen from a near four-month high of 0.7555 achieved last week ahead of the Reserve Bank of Australia’s meeting on Tuesday.

As housing prices rise, the country’s central bank is under pressure to abandon a pledge to keep yields on its April 2024 target bond at 0.1 percent. It elected not to defend the 0.1 percent objective for three-year bond yields late last week, causing them to rise to more than 0.8 percent.

Following Thursday’s European Central Bank meeting, the EUR/USD fell 0.1 percent to 1.1553, barely marginally above Friday’s low of 1.1535.