Dollar Waits on U.S. Inflation Data and Fed Speakers for Next Move

Image Credit; Reuters

 

The dollar started cautiously on Monday as markets prepared for U.S. inflation data and several Federal Reserve speeches this week. Meanwhile, the yuan was weakened by Beijing’s disappointing stimulus package.

Over the weekend, data revealed that consumer prices in China rose at their slowest pace in four months in October, while producer price deflation worsened. Reports on retail sales and industrial output later this week will indicate if Beijing's stimulus efforts are effectively boosting demand.

The underwhelming stimulus package led to declines in the Australian and New Zealand dollars, as both countries are significant exporters to China. The dollar stood at 7.1970 yuan, having risen 0.7% on Friday, and is set to test the 7.2000 barrier again.

The market moves were generally minor with U.S. bond markets closed for the holiday, though stocks and futures were open. The dollar was up 0.1% on the yen at 152.90, after pulling back from last week's high of 154.70 due to concerns over potential Japanese intervention.

The dollar index firmed slightly to 105.00 after rising 0.6% last week, primarily against the euro. The euro was at $1.0711, having dropped 1% last week to as low as $1.0683. Support now lies around $1.0667 and $1.0601.

Political uncertainty in Germany added pressure, as Chancellor Olaf Scholz considered calling a vote of confidence, which could lead to snap elections after the collapse of his governing coalition. Additionally, U.S. President-elect Donald Trump’s tariff proposals on imports have raised concerns about European exports, which could lead to a global trade war.

Analysts expect Trump's policies to push U.S. inflation and bond yields higher, limiting the Fed’s ability to ease policy. JPMorgan economist Michael Feroli revised the Fed’s expected actions, forecasting a 25bp cut in December, but only one further cut per quarter thereafter, with a terminal rate of 3.5% instead of 3.0%.

Several Federal Reserve officials, including Chair Jerome Powell, will speak this week, providing more insight into the rate outlook. U.S. consumer prices on Thursday will also be a key factor; a core reading above the expected 0.3% could make a December rate cut less likely. This scenario is seen as bullish for the dollar in the long term, though the impact of Trump’s policies remains uncertain.

Trump's support for cryptocurrencies has helped push Bitcoin above $80,000 for the first time, as investors anticipate more favorable regulation.

 

 

 

 

 

 

Paraphrasing text from "Reuters"all rights reserved by the original author.