The U.S. dollar steadied below a 2-1/2-week high that was hit in the previous session, as investors braced for inflation data that might offer clues on the timing of policy tightening by the Federal Reserve at a meeting next week.
Before the Federal Reserve’s policy review on Sept 21-22, investors are looking closely at U.S. consumer price data due at 1230 GMT. Economists expect core consumer price inflation (CPI), an index which strips out volatile energy and food prices, to have risen 0.3% in August from July.
“A strong release will likely further dampen the mood, as the bad news on (the) inflation front won’t boost the Federal Reserve’s doves, as high inflation is the major reason why the Fed can’t keep doing what it does: throwing cheap liquidity into the market,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Long dollar bets have climbed rapidly in recent weeks, last week hitting the highest levels since March 2020, as rising inflation prints have raised bets that policymakers will withdraw COVID-19 pandemic-era stimulus earlier than expected.
Against a basket of its rivals DXY , the dollar index steadied at 92.59, having retreated from 92.887, which it hit on Monday. The euro changed hands at $1.1815 EUR=EBS , having bounced back from Monday’s low of $1.17705, its lowest since Aug. 27.
Currency markets were in a quiet mood in early Tuesday trading, with a gauge of broader market volatility .DBCVIX holding near its lowest levels for 2021.
The only source of excitement in the currency markets came from the Australian dollar AUD=D3 . The currency fell to a two-week low after the head of the country’s central bank dismissed market pricing of rate hikes in 2022 and 2023. AUD/
The Aussie extended losses to more than 0.5%, falling to $0.7336 AUD=D3 as Reserve Bank of Australia (RBA) Governor Philip Lowe painted a very dovish policy outlook with no rate rises on the horizon until 2024.
Though the world’s stock markets rebounded on Monday after a fall last week, some analysts also warn of growing headwinds to risk sentiment.
“Global risk appetite is edging toward a more tenuous and twitchy phase. A discordant G2 is increasingly the problem,” said Alan Ruskin, macro strategist at Deutsche Bank in New York, referring to the trade dispute between United States and China.
In cryptocurrencies, bitcoin dropped to as low as $43,400, its lowest in almost a week, and last stood at $45,395 BTCUSD . Ether changed hands at $3,307 ETH=BTSP .