Dollar firms after drop as markets weigh on rate policies, coronavirus

  • US dollar index less than 0.1%
  • The dollar gains on the yen, slides towards the euro, the pound sterling
  • Different central bank movements are essential

NEW YORK / LONDON, Dec. 14 (Reuters) – The US dollar edged down on Tuesday after recovering from a decline that nearly wiped out yesterday’s gains as markets scrambled for the different paths major central banks will choose to fight against inflation and the economic brake of the pandemic.

The US dollar index lost less than 0.1% to 96.315 mid-morning in New York after previously giving up much of Monday’s 0.3% gain.

New US producer price data released earlier today confirmed market expectations that the US Federal Reserve will announce on Wednesday that it will step up its withdrawal from bond purchases. Read more

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The report showed factory exit inflation at 11-year highs.

“It is clear that the Fed needs to respond to higher inflation,” said David Riley, chief investment strategist at BlueBay Asset Management. “It’s an environment where it’s very difficult not to be positive on the US dollar,” he said.

Markets expect the Fed to close its bond purchases around March and hike rates. Read more

“We have a decent long dollar position based on what we expect from the Fed,” said Charles Diebel, head of fixed income at Mediolanum International Funds.

The euro and the pound sterling gained against the dollar.

The euro strengthened 0.1% to $ 1.1294 after hitting a weeklong low at $ 1.12605 overnight. German institute Ifo predicted on Tuesday that the German economy would contract 0.5% quarter-on-quarter in the last three months of this year and stagnate in the first three months of next year. Read more

The British pound gained 0.2% to $ 1.323 after data showed employers hired a record number of staff in November.

But the Japanese yen lost ground, with the dollar trading at 113.69 yen at 3:20 p.m. GMT.

Currencies associated with commodities, including the Australian and Canadian dollars, lost about 0.1% to 0.2% of their value against the greenback as oil prices fell to $ 73 a barrel. The International Energy Agency (IEA) has said the Omicron variant of the coronavirus is expected to start the recovery in global demand. Read more

Exchange rates have moved along with changing expectations about interest rate differences between currencies.

The back-and-forth reflects the prospect of major central banks’ divergent choices between fighting inflation by withdrawing monetary support from their economies or providing easy money due to the spread of the Omicron variant. Read more

It’s different from the start of the pandemic, when central banks tended to take the same actions.

The Fed meeting is headline-grabbing a series of policy decisions this week from the European Central Bank, Bank of England, Swiss National Bank, Bank of Japan and others.

While money markets forecast a good chance of a Fed rate hike by June, no move is expected any time soon from the ECB, BOJ or SNB. And, the Omicron threat could force the BoE to postpone a rate hike.

The cryptocurrency’s bitcoin gained 1% to $ 47,292, but remains around 30% below the highs reached in early November.

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Currency auction price at 10:20 am (3:20 pm GMT)

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Reporting by David Henry in New York and Sujata Rao in London. Editing by Raissa Kasolowsky, Ed Osmond, William Maclean

Our standards: Thomson Reuters Trust Principles.


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