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Dollar drifts lower as Fed speakers soothe inflation fears

Berita 24 English -  In the wake of softer-than-expected U.S. data and fresh comments from Federal Reserve officials, who said they would no...

Berita 24 English - 
In the wake of softer-than-expected U.S. data and fresh comments from Federal Reserve officials, who said they would not raise interest rates, investors eased their fears about rising inflation. They drove the dollar down to the bottom of its recent range on Tuesday.

Investors have an intense short position in dollars due to the widespread belief that low U.S. interest rates will force cash to leave the country due to the worldwide pandemic recovery. In the aftermath of a jump in inflation in April, they became leery of adding positions but seemed to find reassurance in data and Federal Reserve remarks overnight.

As measured by the overnight index swap (OIS), the dollar index fell 0.2% overnight from Thursday's close of 89.853 to Monday's close of 89.750. A 0.3% gain for the euro overnight pushed it near $1.2245, and at $1.2213, it's close to resistance at $1.2245.

Most market participants seem to be returning to the viewpoint that the Fed's theory that a temporary rise in inflation is the only possibility is correct, according to Rodrigo Catril, a senior currency strategist at National Australia Bank in Sydney. Temporary price increases should not result in central banks lowering their stimulus policies.

Even though the U.S. national activity index reading was zero, dovish comments from Fed speakers provided some additional support for the view that the central bank will refrain from tightening monetary policy for the time being.

Federal Reserve Bank of St. Louis President James Bullard said last night that I think it will be safe to talk about adjusting monetary policy's parameters when we are no longer in the pandemic.

The two-week low yield on benchmark 10-year Treasuries was 1.608%, while the dollar weakened against the Australian and New Zealand dollars and the yen.

The yen was last trading at 108.79 US dollars, one dollar below its year-to-date high of 109.08, while the kiwi and Aussie ranged somewhere in the middle of yearly ranges they have maintained since April. The Aussie bought 77.50 Australian dollars and the kiwi 72.11 New Zealand dollars. under [AUD/]

In the past three weeks, sterling has only gained about 1.2%, while other major currencies have slightly slumped. It was trading at $1.4160 at the time of this writing. New [GBP/]

There is a time for everything.

A great many bets are predicated on the assumption that low-interest rates will be with us for the long haul.

Said Stuart Oakley, head of cash currency trading at Nomura in London, "The whole world is in a wait-and-see mode."

When the Federal Reserve decides to discuss tapering, the coming months will be very critical for FX. Once a hint is given that stimulus has shifted, everything will be different.

Looking ahead to Tuesday, we have a report on the German economy, a series of U.S. housing updates, and some policymaker speeches in Europe, Britain, and the United States.

An important U.S. core consumer price index is released on Thursday. At the same time, in the antipodes, the Reserve Bank of New Zealand's (RBNZ) Wednesday policy statement will be of significance as well due to the possibility that it could begin to project rate increases.

After the Asian markets gave it their best try at a bounce from their recent lows, crypto markets remained relatively stable. As of today, Bitcoin is close to reaching its 200-day moving average at $39,600.

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