Dollar steadies

On Monday, the dollar edged lower as traders concluded that Federal Reserve is tightening moves priced in, while the euro eased from a two-month high set on Friday.

The Fed meets on January 25-26 and expects to change interest rates.

According to ING analysts, investors will be focusing on speeches from President Christine Lagarde and other ECB members with no significant economic data on the calendar this week.

On Friday, European Central Bank President Christine Lagarde stated that the bank is prepared to take any measures necessary to reduce inflation to its target of 2%. Last month’s inflation rate of 5% was the highest on record for the 19-country currency bloc.

In remarks published on Friday, ECB board member Isabel Schnabel stated that raising interest rates in the eurozone would not reduce soaring energy prices.

Elsewhere, the tide is turning in favor of tightening. Even the ultra-accommodative Bank of Japan debates when to start signaling hike intentions.

China is an outlier, with a slew of economic data confirming the dampening effect of coronavirus restrictions on consumer spending, prompting Beijing to ease monetary policy.

Currencies

The yuan fell slightly as government bonds rallied in response to the rate cut before firming at 6.3475 per dollar.

The release of UK inflation data on Wednesday could help extend sterling’s month-long rally. It was unchanged at $1.3679 per dollar, rising to its highest level since late October last week.

China’s unexpected cut in key lending rates highlighted it as the outlier with other major central banks in talks to raise rates. China’s move only had a short-term impact on the yuan.

The US dollar index fell sharply last week before surging on Friday, was down 0.1 percent at 95.076 at 0900 GMT. On Monday, the cash Treasury market was closed for a holiday.