US Dollar Still Rangebound as Safe Haven Appeal Offsets Weak Inflation
Aiswarya Gopan • 1 min read
The US dollar remains rangebound into Wednesday after the US CPI data which released in the previous session came in weaker than forecast and heightened uncertainties about when the Fed could begin tapering its asset purchase program. At the time of writing, the US dollar index DXY is trading at around 92.54.
The greenback’s initial reaction to the soft inflation figures was to slide lower; however, its safe haven appeal received a boost after equity markets turned bearish on Tuesday. A move from riskier instruments like stocks into the safety of the US dollar gave it some support but its gains remain limited as the disappointing inflation figures further reinforce Fed Chair Powell’s statements that the effects of price rise on the economy remain transitory and do not require intervention from the central bank.
US’s core CPI rose by 0.1% during the month of April against expectations for a 0.3% rise instead. The data is exerting pressure on the reserve currency as investors expect it to play an important role in the Fed’s policy meeting next week where officials may confirm a timeline for when the tapering of its asset purchase program could begin.
A strong inflation reading could have encouraged policymakers to start the process as soon as this month. However, analysts now expect the tapering process to begin only by November and December; although, a timeline for rate hikes remains uncertain.
Looking ahead, the focus shifts back to the labor market with the release of the unemployment claims report on Thursday as well as the upcoming retail sales report from the US. The market sentiment can also be a key driver of moves in the US dollar in the coming sessions.