Traders look to cenbanks for guidance

The dollar has bounced off recent lows and was firm in choppy trade. It is ahead of a handful of data releases and central bank meetings which investors expect to guide the rates outlook. The euro fell 0.3% overnight. There are still expectations that the European Central Bank (ECB) will stay dovish. The euro last bought $1.1598. Other moves were modest. There was a small rise on Japan’s yen to 113.83 yen, and a slight dip on the Aussie. The U.S. dollar index rose held at 93.856.

Westpac said in a note that the dollar looks to be finding its feet in the mid-93s. The focus will turn to the ECB and U.S. Q3 GDP. The ECB likely underscores dovish guidance, while US GDP will show the rebound stalling. All told that should keep short-term yield spreads trending in the dollar’s favor. This will leave the dollar with a bid tone. Central bank meetings in Japan and Canada are also scheduled, as is the release of quarterly inflation data in Australia.

The Australian dollar edged up to $0.7503. The kiwi held at $0.7165. Economists expect growth in Australia’s trimmed mean consumer prices. Inflation in Canada has also put pressure on the central bank. The Canadian dollar stands at C$1.2383 per dollar. Societe Generale strategist Kit Juckes said that any hawkish undertones would get me over-excited about a return to 1.20 again. The Bank of Japan also meets. It is discussing phasing out a COVID-19 loan program, though a decision before December is unlikely. The Fed, the RBA and the Bank of England are going to meet with markets having priced a roughly 60% chance that the Bank of England raises interest rates to head off inflation. Sterling has been firming at the prospect of higher rates and was last steady at $1.3758.

ANZ Bank‘s senior international economist Brian Martin said that small open economies are prone to importing price rises, which could enter the inflation equation early. Monetary tightening is justified in this environment. The UK is a case in point and the Bank of England looks poised to join the early rate tighteners soon. They have brought forward, to this quarter, the time when they expect the BoE to start rate normalization.