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Dollar edges higher, helped by hawkish Fed speakers ; Sterling slips ahead of BOE

Published 05/09/2024, 04:37 AM
Updated 05/09/2024, 04:43 AM
© Reuters.
- - The U.S. dollar edged higher Thursday, trading in a tight range ahead of next week’s all-important U.S. inflation data, while the pound slipped ahead of the Bank of England’s policy-setting meeting.

At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 105.605, rebounding after last week’s one-month low.

Tight trading range ahead of US CPI

The dollar has steadied this week, after last week’s sharp losses, after a number of Fed officials have pushed back against the idea that rate cuts are a certainty this year.

Minneapolis Fed boss Neel Kashkari suggested on Tuesday that stubborn inflation and a robust economy could persuade the U.S. central bank to keep interest rates unchanged for the rest of this year.

Fed Bank of Boston President Susan Collins continued the theme on Wednesday, saying that the U.S. economy needs to cool to return inflation back to target.

There are more speakers due both Thursday and Friday, as well as weekly jobless claims data. 

However, trading ranges are likely to be limited ahead of next week’s April U.S. producer price index and, in particular, the consumer price index, which traders will watch for signs that inflation has resumed its downward trend toward the Fed's 2% target rate.

Sterling slips ahead of BOE meeting

In Europe, GBP/USD traded 0.2% lower to 1.2475, ahead of the latest Bank of England rate-setting meeting.

The U.K. central bank is not expected to move interest rates later Thursday, and thus the big question is whether the officials signal that a cut will come in June, when the European Central Bank has already signalled it will.

A cut is fully priced for August and last week sterling short positions rose to their largest since January 2023, so sterling could be volatile if post-meeting guidance doesn't match up to the market's expectations.

In Europe, EUR/USD traded 0.1% lower to 1.0732, trading largely unchanged given a light data calendar.

"It’s hard to see EUR/USD breaking far from 1.0750, unless the BoE is demonstrably dovish and GBP/USD drags EUR/USD lower with it,” said ana;ysts at ING, in a note.

Yen drifts lower despite rate hike talk

In Asia, USD/JPY rose 0.3% to 155.87, with the yen remaining weak despite hawkish opinions from Bank of Japan's members.

The BOJ's summary of opinions released earlier Thursday showed board members were overwhelmingly hawkish at their April policy meeting with many calling for steady interest rate hikes.

BOJ Governor Kazuo Ueda also warned that any inflationary pressures arising from weakness in the yen could invite monetary tightening by the central bank.

That said, the yen has still resumed its decline even after a couple bouts of suspected intervention.

USD/CNY rose 0.1% to 7.2260, with the yuan struggling to maintain earlier gains after data showed Chinese imports grew substantially more than expected in April, signaling some strength in domestic demand.


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