The dollar slipped slightly in early European trade. This is after it have spent a week gradually edging away from two-month highs hit after the U.S. Federal Reserve’s surprise hawkish shift at its meeting.
As traders weighed up different signals from Federal Reserve officials on the timing of a withdrawal of monetary stimulus, currency markets were quiet. The dollar index inched lower to 91.738 at 0715 GMT. The euro was a touch higher against the dollar. And the dollar got some support overnight from two Fed officials. They said that a period of higher inflation in the United States could last longer than expected. Fed Chair Jerome Powell said that the price pressures should ease on their own. New York Fed President John Williams said that any conversation about when to adjust interest rates is still far off.
ING FX strategists wrote in a note to clients stating that they continue to expect the market to reward those currencies that are backed by tightening cycles (For example NOK, CAD and NZD in G10 space). Although the room for a rally in low yielders has probably shrunk. The Bank of England meeting and policy announcement has all the market attention. Andy Haldane is likely to vote again to scale back the bond-buying program at his final meeting, that is before leaving the BoE.
Commerzbank strategist Thu Lan Nguyen wrote in a note to clients that they are not sure whether the BoE will send the signal the Sterling bulls are hoping for. They fear that it might be too early and that the recent rise in inflation wasn’t high enough yet. As a result of this, they see considerable potential for disappointment for Sterling. The U.S. dollar was down 0.1% against the yen, after the pair hit a 15-month high of 111.11 overnight. Bitcoin was down around 2%, at $33,000. Ether was trading around $1,900. U.S. jobs data is due later in the session.
