Dollar Edges Higher

The dollar rose higher on Tuesday, recovering from a one-month low. At the same time, gains were modest ahead of the publication of important economic data and the Federal Reserve meeting next week.

The Dollar Index measures the value of the US dollar against a basket of six other currencies. It was 0.1 percent higher at 93.882, slightly above Monday’s one-month low.

After Japan’s September PPI rose 0.9 percent year on year, the USD/JPY traded 0.2 percent higher at 113.91. EUR/USD fell to 1.1604. GBP/USD fell slightly to 1.3767. The risk-sensitive AUD/USD advanced 0.3 percent to 0.7511. The dollar took a hit late last week when Federal Reserve Chair Jerome Powell stated that it is not yet ready to begin raising interest rates in the United States.

The Fed has now entered a blackout period ahead of next week’s policy-setting meeting. It expects to signal the start of the central bank’s removal of its bond-buying stimulus.

In the lack of any Fed communication, the market will focus on US data this week. Tuesday’s data set includes new house sales for September and October, as well as consumer confidence figures from the CB. In the lack of any Fed speakers before the November 3 FOMC meeting, we believe that the persistence of inflation can continue to support market re-pricing of the Fed curve and support dollar strength against low yielders.

USD/TRY

In other news, the USD/TRY dipped 0.1 percent to 9.5701 as President Tayyip Erdogan backed down from his demand that 10 Western ambassadors be withdrawn from Turkey over criticism of a government critic’s imprisonment. This de-escalated a diplomatic crisis that had rattled the currency. In reaction, the Turkish lira has recovered after plummeting to record lows against the US dollar on Monday.

Furthermore, the USD/CNY fell 0.1 percent to 6.3819 after China’s central bank injected a net 190 billion yuan ($30 billion) into the financial system.

It was causing the overnight interbank repo rate to fall as much as eight basis points to 1.53 percent, the lowest since September 29 and close to a nine-month low.