By Peter Nurse
Investing.com - The dollar edged higher in early European trade Thursday, remaining near five-month lows, ahead of key economic data which could influence the Federal Reserve’s monetary policy thinking.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 90.025, recovering from the week’s low of 89.662, a level not seen since early January.
EUR/USD traded 0.1% lower at 1.2196, while USD/JPY rose 0.2% to 109.77. GBP/USD fell 0.1% to 1.4153, easing off a three-year high of 1.4250 reached Tuesday, and the risk-sensitive AUD/USD fell 0.2% to 0.7733.
The dollar has remained broadly offered for most of 2021 as traders have reacted to ultra-easy Federal Reserve policies, and the suggestions that these would stay in place for some time, as the world recovers from the Covid-19 pandemic.
However, some traders have started to become nervous as a surprisingly strong U.S. economic rebound and growing inflation concerns pose a threat to this key assumption that interest rates stay low for a prolonged period.
The Fed’s Beige Book, released Wednesday, indicated that the pace of the U.S. recovery picked up somewhat in the past two months, sparking price pressures as businesses contended with worker scarcity and rising costs. This follows consumer prices in April accelerating at its fastest pace in more than 12 years.
Fed officials have usually been at pains to say that these inflationary pressures will be temporary in nature, but there have been some recent comments of a more hawkish nature.
On Wednesday, Philadelphia Fed President Patrick Harker said that the central bank should begin discussing the time frame for paring back its bond-buying program, for example.
That said, a lot depends on the labor market, particularly after the weak April jobs report.
U.S. private payrolls figures due later on Thursday, as well as the weekly initial claims data, are the latest numbers to offer clues on the state of the economy and a possible read on broader nonfarm payrolls data due on Friday.
Elsewhere, USD/CNY rose 0.1% to 6.3893, with the yuan weakening as China’s services sector grew at a slower pace in May due to decreasing overseas demand and rising input costs for businesses.
Data released earlier in the day saw the Caixin Services Purchasing Managers Index in May falling to 55.1, below April’s 56.3 but still above the 50-mark indicating growth.
USD/TRY rose 0.2% to 8.5976, with the lira starting to weaken once more despite the verbal efforts of central bank Governor Sahap Kavcioglu to prop the Turkish currency up.
Kavcioglu told investors in a conference call on Wednesday that fears of a premature interest rate cut are unjust.
This followed the lira sinking to an all-time low against the dollar in early trading Wednesday after President Recep Tayyip Erdogan had reiterated his call for lower interest rates.