Dollar edges lower as investors wait for the clues on rates

The dollar fell slightly in early European trade Tuesday. It trailed the release this week of critical U.S. inflation data that will guide the Federal Reserve’s interest rate outlook.

The Dollar Index fell 0.1 percent to 93.938. It is retreating further from Friday’s high of 94.645, its highest level in over a year.

Currencies

EUR/USD rose 0.1 percent to 1.1597. USD/JPY fell 0.4 percent to 112.82. GBP/USD rose 0.1 percent to 1.3568. The risky AUD/USD remained essentially unchanged at 0.7420. In other news, the USD/TRY rose 0.5 percent to 9.7250 after Turkey’s central bank reduced the number of gold banks that can hold as part of their lira reserve requirements. It effectively increased the number of local currency lenders that must deposit with the central bank. To compensate for any impact on its reserves, the central bank raised the reserve requirement ratios for foreign currency deposits by 200 basis points.

The lira is under pressure as President Recep Tayyip Erdogan defies conventional monetary policy wisdom by seeking lower interest rates to combat rising inflation.

The federal reserve

The Federal Reserve’s insistence at its recent policy-setting meeting that it would be patient in deciding when to raise interest rates has caused the dollar to fall.

Fed funds futures have pushed the likely rate hikes from July to September or October of next year.

Before releasing the most recent U.S. inflation data, factory gate prices expect to show that inflation remains a significant factor in the central bank’s thinking later Tuesday.

The euro

On Tuesday, the euro held steady against the dollar. Most currency pairs remained unchanged. Meanwhile, traders awaited U.S. inflation data, and additional speeches from central bank governors for clues on interest rate policy.

Currency markets have returned to a period of low volatility. This happened after central banks attempted to counter rising rate hike expectations last week, sending the euro and pound lower. The euro was unchanged at $1.1587 on the day, and the dollar index was entire at 94.001.

RBC Capital Markets currency analyst Adam Cole remains bullish on the dollar. 

Sterling was last at $1.3558, flat on the day but still some distance from Friday’s low of $1.3425. After being hammered the previous week in the aftermath of the Bank of England’s surprise decision to keep rates on hold.

After rising on Monday, the Norwegian crown held steady at $0.7163. It drew support from traders wary of the Reserve Bank of New Zealand raising interest rates by up to 50 basis points later this month.