SINGAPORE- The dollar was little changed but hovering near a two-week low on Thursday following minutes from the last Federal Reserve meeting that showed policymakers taking a cautious stance, as investors awaited key US inflation data.
The dollar index which measures the US currency against six rivals, was at 105.64, not far from 105.55, its lowest since Sept. 25 that was touched on Wednesday.
Fed officials pointed to uncertainties around the economy, oil prices and financial markets as supporting “the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate,” according to the minutes released on Wednesday from the Sept. 19-20 meeting.
In recent comments, Fed officials have cited rising bond yields as a factor that may allow them to end the rate hike cycle.
Also keeping the mood cautious was a mixed report on US producer prices, which increased more than expected in September amid higher costs for energy products and food. But underlying inflation pressures at the factory gate continued to abate.
“This (PPI data) is a reminder that the last mile of the fight against inflation is going to be a tough one,” said Ryan Brandham, head of global capital markets, North America at Validus Risk Management.
The report comes ahead of the release later on Thursday of September’s US consumer price index data, which is expected to show inflation moderated last month.
A downside surprise to inflation will likely support the case for the Fed to have finished its tightening cycle, thereby pulling down US yields and the dollar, according to Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“On the flip side, an upside surprise will likely encourage markets to reprice higher the chance the Federal Open Market Committee will follow through on its projected 25 basis point hike.”
Futures markets are pricing in a 26 percent chance of a 25 basis point (bps) hike at the December meeting and a 9 percent chance of a 25 bps rise at the November meeting, according to the CME FedWatch tool.
