SINGAPORE- The dollar coasted at the bottom of its recent range on Tuesday, as softer-than-expected US data and fresh insistence from Federal Reserve officials that policy would stay on hold allayed investor fears about inflation forcing interest rates higher.
Investors are heavily short dollars in the belief that low US rates will drive cash abroad as the world recovers from the pandemic. They have become leery of adding to positions after an April leap in inflation cast doubt on the policy outlook, but seemed to find reassurance in data and Fed remarks overnight.
Early Asia trade was steady, with the dollar index nursing a 0.2 percent overnight loss at 89.853 – just above a four-month low. The euro held a 0.3 percent overnight gain and, at $1.2213, is close to testing resistance around $1.2245.
“Markets appear to be coming around to the Fed narrative that a burst in inflation is only likely to be temporary,” said Rodrigo Catril, a senior FX strategist at National Australia Bank in Sydney. “A temporary spike in prices should not instigate a removal of stimulatory policies from central banks.”
The US national activity index reading of 0.24 against expectations above 1, as well as dovish comments from Fed speakers provided some backing for the view that any policy tightening is not happening any time soon.
“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” Federal Reserve Bank of St. Louis President James Bullard said overnight.
