THE US dollar gained on Tuesday (Jul 9) after Federal Reserve chair Jerome Powell acknowledged progress in inflation, but did not give a clear signal that the US central bank is close to cutting interest rates.
Powell said that inflation “remains above” the US Federal Reserve’s 2 per cent target, but has been improving in recent months and “more good data would strengthen” the case for central bank interest rate cuts.
He made the comments in congressional testimony, appearing to show increasing faith that inflation will return to the Fed’s target, a requirement for easing monetary policy.
“The market is counting the days until we get a rate cut signal from Federal Reserve chair Powell and I think there were some in the market who were looking for a more concrete step towards rate cuts later this year,” said Adam Button, chief currency analyst at ForexLive in Toronto.
“When he didn’t deliver that we saw a little bit of dollar buying,” Button said.
The dollar index, which measures the US currency against the euro, sterling, yen and three other major rivals, was last up 0.11 per cent at 105.09. It fell to 104.80 on Monday, the lowest since Jun 13.
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Traders have boosted bets since Friday’s jobs report that the Fed will cut twice by December, with the first reduction likely in September.
The jobs data for June showed rising unemployment and downward revisions for jobs gains for the prior two months.
This week’s main US economic focus will be Thursday’s consumer price index for June, which is expected to show that headline prices rose 0.1 per cent on the month, while core prices gained 0.2 per cent. That would put annual gains at 3.1 per cent and 3.4 per cent, respectively.
The euro dipped after Monday’s sharp swings as investors came to terms with a hung parliament in France, which points to a potential political gridlock but lessens fiscal concerns stemming from outright far-right or leftist victories.
French political leaders from the left-wing bloc that came first in Sunday’s legislative election said they intended to govern according to their tax-and-spend programme, but centrists laid claim to a role as the left lacks a majority.
The single currency was last down 0.04 per cent at US$1.0818. It reached US$1.0845 on Monday, the highest since Jun 12.
The European Central Bank can continue to gradually reduce interest rates without jeopardising a current fall in inflation, governing council member Fabio Panetta said on Tuesday.
The ECB cut rates for the first time in June from their record highs, but has made no explicit commitment on a follow-up move.
The dollar strengthened 0.29 per cent to 161.27 Japanese yen . It is holding below a 38-year high of 161.96 reached last week.
Some market players called on the Bank of Japan to slow its bond buying to roughly half the current pace under a scheduled tapering plan due out this month, the central bank said on Tuesday.
Sterling weakened 0.09 per cent to US$1.2794.
In cryptocurrencies, Bitcoin gained 1.76 per cent to US$57,254. REUTERS
