Dollar Dips Back to A One-Month Low

The dollar slid back to a one-month low on Monday. Traders remained focused on the likelihood of interest rate hikes and tightening outside of the United States.

Currency markets were mostly quiet at the start of the week, as traders awaited U.S. GDP figures and central bank meetings in the eurozone, Japan, and Canada.

The dollar index fell to a one-month low in Asian hours. This resulted from Federal Reserve Chair Jerome Powell warning on Friday that it was not yet appropriate to begin raising interest rates. The index had recovered some of its losses by 0730 GMT and was last down 0.1 percent at 93.542. Commodity-linked currencies, such as the Australian, Canadian, and New Zealand dollars, have benefited from the ongoing boom in commodity prices.

The euro remained unchanged at $1.1647, while the yen fell, with the dollar rising 0.2 percent to 113.66 yen. Support for the U.S. currency from higher U.S. rates has been reduced so far this month by both an improvement in global investor risk sentiment and a corresponding rise in yields outside the U.S. on average in other G10 economies.

Yields and Inflation

As a result, yield margins in favor of the U.S. dollar have not changed decisively. The case for a higher U.S. dollar is more convincing versus the low-yielding G10 currencies such as the EUR.

Powell’s statements came as investors priced in Fed rate rises beginning in the second half of next year and began to reduce long dollar positions in expectation of other central banks moving even faster.

The Australian inflation statistics anticipated on Wednesday will likely set the tone for the next stage of a scuffle between markets and a steadfastly dovish central bank. The Bank of Japan and the European Central Bank do not anticipate changing policy when they meet on Thursday. Still, market gauges of projected inflation in Europe are increasingly diverging from the bank’s guidance. In other news, China’s yuan reached a five-month high of 6.3782 per dollar, while the Turkish lira plunged to a new record low following a surprise rate drop last week.