On Wednesday, the dollar was just below this year’s high against the euro. It hit a five-week high against the yen ahead of U.S. inflation data. It is possible that a substantial number would put pressure on the Federal Reserve to reduce policy support.
The dollar has benefited from last week’s essential job data in the United States. It also benefitted from comments by Fed officials about tapering bond purchases and raising rates sooner than policymakers elsewhere.
On Tuesday, the common currency fell to its lowest level since late March after six straight sessions of gains against the euro. The year’s low of $1.1704 is now within reach, with the price hovering around $1.1718 during the Asian session. The dollar index is at a three-week high of 92.139, close to its 2021 high of 93.439.
Inflation data could determine whether it reaches those peaks, with a high reading likely to fuel hike expectations and provide support. At the same time, a joint task could deter those expecting a hike. The yen fell marginally to 110.69 per dollar in early trade. This is its lowest level since mid-July, after falling for five consecutive sessions against the dollar. The dollar also hit two-week highs of $1.3820 per pound and 0.9234 Swiss francs in a month.
A stronger-than-expected print could boost the dollar, and Maybank analysts in Singapore stated in a note. If the CPI print surprises to the downside, the dollar and Treasury yields may fall asymmetrically more than the upside risks.
According to Reuters polled economists, the pace of inflation will have slowed slightly in July. With headline consumer prices rising 0.5 per cent for the month compared to 0.9 per cent a month earlier, the annual rate remained at 5.3 per cent.
Two Federal Reserve officials stated that inflation has already reached a level that could satisfy one leg of a test to raise interest rates.
Investor sentiment in Europe is deteriorating, with a survey showing a third consecutive month of decline in Germany, as rising global COVID cases keep markets nervous.
According to Rabobank analyst Jane Foley, investors must consider the possibility of Fed tapering news at a time when COVID is still present in various parts of the world.
She added that the result would likely be a stronger dollar, especially if the euro falls below its 2021 low. The troubling global spread of the Delta coronavirus variant will be closely related watched.
The Chinese yuan fell to a two-week low in offshore trade before recovering onshore. The South Korean won fell to a two-week low as well. As a result of significant city lockdowns, a measure of consumer sentiment in Australia fell to a one-year low, and the Australian dollar fell slightly. The Australian dollar was last worth $0.7338, while the New Zealand dollar was worth $0.7003.
The kiwi has supported expectations that the Reserve Bank of New Zealand will raise interest rates next week. With a 12-month price target of $0.75, Shafali Sachdev, FX head in Asia at BNP Paribas (OTC: BNPQY) Wealth Management, is bullish on the kiwi.