The U.S. dollar struggled on Thursday as traders discussed whether the Federal Reserve would taper its asset purchases shortly or not. Investors are also waiting for closely watched U.S. inflation data, which is due this week.
The forex market is currently heavily short on dollars. As a result, the suggestion of tapering is enough to hinder further selling. Against the euro and the Japanese yen, the greenback held late Wednesday gains in the Thursday Asia session.
Meanwhile, the euro exchanged hands at $1.2199, remaining firm during the session. The Japanese yen tumbled down near a one-week low at 109.13 per dollar, however. The British Pound also dropped to a week-low of $1.4136 before rebounding slightly.
Fed officials have downplayed investors’ worries about inflation, prompting a sharp policy response this week. Despite that, they have made a subtle shift in tone and even acknowledged that the time to talk about policy changes might not be far.
What Do the Analysts Say?
Most analysts believe the Fed isn’t planning to rein in its asset purchases soon. According to ING analysts, Fed Vice Chair of Supervision Randal Quarles’ comments about the importance of starting the discussion on quantitative easing tapering plans shouldn’t have a long-lasting positive impact on the dollar. They added that the market expects tapering later this year, and it is not imminent.
Despite its struggle, the dollar managed to strengthen enough on Thursday to push the kiwi lower for a time after the Reserve Bank of New Zealand hinted about a 2022 rate hike. Still, the New Zealand dollar rebounded soon and soared as high as $0.7304. The Australian dollar also climbed up by 0.1% to $0.7753 on Thursday.
Investors are currently focusing on U.S. inflation data, which is due on Friday. They are trying to gauge the extent of a surge in price growth in recent months.