SINGAPORE- The dollar found support on Thursday from emerging views the Federal Reserve is slowly but surely edging towards a discussion about tightening monetary policy, and as traders await crucial US inflation data this week.
In a market heavily short dollars, the mere suggestion of tapering is enough to temper further selling and against the euro and the yen the dollar held late Wednesday gains early in the Thursday Asia session.
The euro traded at $1.2185 and the yen at a one-week low of 109.20 per dollar. Sterling also dipped to a week-low of $1.4150.
Dollar strength also clipped the wings of the kiwi and it bought $0.7275 after hints of a 2022 rate hike by the Reserve Bank of New Zealand pushed it as high as $0.7316 on Wednesday. The Australian dollar dipped to $0.7732.
Fed officials have this week downplayed immediate concerns about inflation prompting a knee-jerk policy response. But they – and notably influential vice chair Richard Clarida – have made a subtle shift in tone by acknowledging that the time to talk about policy changes might be approaching.
“That’s probably behind the USD strength we’re seeing at the moment,” said Commonwealth Bank of Australia currency strategist Kim Mundy on the phone from Sydney.
“The PCE deflator will be even more closely watched,” she added, referring to the personal consumption expenditures index which is the Fed’s preferred inflation gauge. – Reuters
