Weakness in US Dollar Extends – Focus on Fed and Inflation to Continue
The US dollar is hovering close to the lowest levels seen since four months, as weak economic data releases from the US and more comments
Early on Tuesday, the US dollar is hovering close to the lowest levels seen since four months, as weak economic data releases from the US and more comments from Fed officials maintaining an extension of their dovish outlook exert downward pressure on it. At the time of writing, the US dollar index DXY is trading around 89.63.
Even as the US economy, as well as economies around the world, start recovering at a rapid pace from the pandemic-inflicted damage, investors worry that Fed’s plans to stay on course with monetary easing measures could drive an outflow towards other currencies. These concerns have become even more grave after other leading central banks, especially the BOE and the BOC have started looking into tapering off stimulus measures.
There were some expectations a few sessions ago when the US posted a stronger than forecast CPI that inflation could heat up and convince the Fed to act sooner. However, this release was followed by weaker figures highlighting that the US economy still faces considerable strain and uncertainties, supporting Fed officials’ comments that a hike in inflation would be temporary but the economy needs more support to rebound fully.
Markets are likely to continue focusing on economic data releases from the US to gain a better picture on how the dollar could move in the coming months. While positive economic data releases in the near future could raise some hopes, the spotlight will likely remain on inflation data and whether it will rise high enough to warrant Fed officials to change their minds.
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