SINGAPORE- The dollar made a steady start to the week on Monday, as investors were focused on US European and Japanese inflation data to guide the global interest rate outlook.
Foreign exchange trade has been dominated by the hunt for “carry” in recent months, punishing low-rate currencies and supporting the dollar while US data has blown hot and cold and dented policymakers’ confidence on the rates outlook.
Several major pairs have hugged tight ranges. The euro which gained 0.9 percent on the dollar last week, was in the middle of a range it has held for more than a year at $1.0846.
Trading on Monday was thinned by holidays in Britain and the United States.
German inflation on Wednesday and euro zone readings on Friday will be watched for confirmation of a European rate cut that traders have penciled in for next week.
Sterling was testing the top side of a range it has held this year at $1.2735. The Australian and New Zealand dollars have eased from recent highs, leaving the Aussie at $0.6637 and the kiwi at $0.6122 as markets have dialed back interest rate cut expectations for the US
Friday’s reading for the core personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure is expected to be steady month-on-month.
The dollar had fallen back after data showed a slowdown in consumer price rises in April and confirming the trend could pull it lower still – but the big picture is that inflation and inflation indicators remain above the Fed’s 2 percent target.
“Reaching the 2 percent inflation goal seems further away than late last year, and several softer inflation readings are needed to restore confidence,” said analysts at SocieteGenerale.
