US Dollar Holds Steady as Investors Await Inflation Data
Aiswarya Gopan • 2 min read
The US dollar is starting Tuesday on a steady note as investors await the release of the inflation data before entering new positions, especially in a bid to understand when the Fed could begin to taper its asset purchase program. At the time of writing, the US dollar index DXY is trading at around 92.59.
Economists’ forecast is for the US’s core CPI to have risen by 0.3% MoM during August while on an annual basis, it is expected to ease slightly lower from 4.3% YoY in July to 4.2% YoY. While the core CPI excludes volatile food and energy costs, the overall CPI which includes them is also forecast to come in a little lower – from 5.4% in July to 5.3% in August.
Inflation levels remain well above the Fed’s target of around 2% and the continuously high readings may force the US central bank to act sooner by withdrawing stimulus. Even though Chairman Powell has insisted that price rise could be transitory as the economy recovers, consistently high readings could play an important role in the upcoming policy meeting the Fed is scheduled to conduct next week.
A stronger than forecast inflation reading could drive bullish moves in the US dollar, raising expectations for the Fed to begin the process of tapering soon. On the other hand, a weaker reading could signal that the effects of price rise are easing, which could convince the Fed to stay on track with monetary support for the economy.
According to a recent report on the Wall Street Journal, there appears to be growing interest among Fed officials to begin tapering asset purchases by November. If this gets confirmed in next week’s meeting, the focus will then shift on when the US central bank could start implementing rate hikes again after holding them at record low levels since the beginning of the pandemic early last year.