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On March 20, 2019, an employee at a money exchange in central Cairo, Egypt, counts US dollar bills. Mohamed Abd El Ghany/REUTERS Reuters, SINGAPORE, July 13 – The dollar gained ground on Tuesday ahead of US inflation statistics, as investors waited to see if the figures would reveal anything about the timing of tapering and interest rate hikes. The dollar held a tiny Monday gain against the euro, trading at $1.1861, with the euro being impacted after European Central Bank President Christine Lagarde hinted at a dovish shift in Europe’s rate stance. find out more The dollar held slight gains against sterling, the Australian and New Zealand dollars, and the Japanese yen early in the Asia session, as investors await inflation data coming at 1230 GMT. The consumer price index in the United States is expected to have risen 0.5 percent from May and 4.9 percent from a year ago, according to economists polled by Reuters. Traders believe that a miss on either side might impact the dollar and the bond market by altering interest rate expectations. “My back-of-the-envelope playbook is that we’d need a headline year-over-year number north of 5.5 percent to truly set this market ablaze,” Chris Weston, head of research at broker Pepperstone, said. “We know inflation is temporary; the question is how long it will take for the year-on-year change to return to 2%,” he said. “With a headline print below 4.5 percent, we should see USD/JPY and USD/CHF under pressure.” Kit Juckes, a strategist at Societe Generale, says the response will be stronger if inflation falls short of expectations, causing investors to assume the Federal Reserve can keep its easy monetary policy in place for longer, and he sees the yen as a beneficiary. On Tuesday, the Japanese yen was trading at 110.31 per dollar, having fallen overnight to move farther away from last week’s one-month high of 109.535. The franc remained stable at 0.9151 per dollar, near a one-month high. The Australian dollar was stable at $0.7487, while the New Zealand dollar was steady at $0.6991. Even as cases continue to rise, sterling stayed at $1.3892 amid fears that England may lift COVID-19 restrictions next week. The dollar index, which compares the US dollar to a basket of six major currencies, remained unchanged at 92.202, barely above its 20-day moving average. The dollar is being pushed by expectations for rate hikes in the United States, and it has gained over 2% in the month since the Federal Reserve startled markets – and cleaned out massive bets on the currency falling – by projecting faster-than-expected rate hikes in 2023. Investors are buying longer duration bonds as they sense flaws in the economy and believe the Fed’s hawkish tilt means it will move quickly enough to keep inflation low. The reaction of Fed Chair Jerome Powell to the inflation statistics, as well as his tone on the recovery’s development, will be widely scrutinized during his hearing before Congress on Wednesday. On Tuesday, Fed officials Neel Kashkari, Raphael Bostic, and Eric Rosengren will appear. ======================================================== At 04:08 GMT, currency bid prices were as follows: Each and every location Locations in Tokyo, Europe Volatilities BOJ provides information on the Tokyo foreign exchange market. Tom Westbrook contributed to this report.
Shri Navaratnam edited the piece.
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