SINGAPORE- The dollar clung to a small bounce on Wednesday as traders looked to upcoming US inflation data and a European Central Bank (ECB) meeting to gauge the global recovery and policymakers’ thinking.
Investors have piled up bets against the dollar, but are growing nervous about whether the beginning of the end of enormous monetary stimulus is nigh – and worry that interest rate rises could end a 15-month dollar downtrend.
Some think tapering could be hastened, and the dollar boosted, if US inflation runs hotter than the 0.4 percent monthly clip that economists expect. For the ECB, the focus is on any signs of an imminent slowdown to its bond buying program.
Both are due on Thursday and the anticipation has all but killed volatility in major currencies, as traders assume a wait-and-see stance. The euro was steady at $1.2174 early in the Asia session, while the dollar held firm at 109.42 Japanese yen.
Deutsche Bank’s Currency Volatility Index hit its lowest level since February 2020 overnight. The US dollar index is parked at 90.107.
“Markets need reassurance that the global economic recovery isn’t under threat from either dangerous strains of COVID, or from the Fed being forced to change tack (on stimulus) much earlier than expected,” said SocieteGenerale currency strategist Kit Juckes. – Reuters
