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Dollar flat as investors eye ECB meeting, U.S. CPI report


Investors have adopted a wait-and-see attitude, leaving major currencies range-bound

The dollar was little changed and off session lows on Wednesday as investors focused on a European Central Bank (ECB) meeting and the upcoming U.S. consumer price index report to help gauge the current pace of the economic recovery.

Both are due Thursday, and investors have adopted a wait-and-see attitude, leaving major currencies mostly range-bound recently.

The U.S. Labor Department’s consumer prices data has been much anticipated after last month’s report showed consumer prices rose by the most in nearly 12 years in April, fuelling the view that higher prices could last longer than some anticipate. Economists polled by Reuters forecast the CPI advanced 0.4% in May.

Earlier, Chinese producer price data for May showed the biggest jump in a dozen years, and the country’s consumer prices increased 1.3% in May – the biggest year-on-year (YOY) rise in eight months.

With the ECB, investors will be watching for any clues of an imminent slowdown to its bond-buying program.

The Bank of Canada on Wednesday left its key interest rate unchanged as expected, and said it would maintain its current policy of quantitative easing. It also reiterated its guidance that rates would remain unchanged until at least the second half of 2022.

The Canadian dollar rose against the greenback in the wake of the announcement. In afternoon trade it was flat at 1.21 per dollar.

The dollar index was last up 0.03% at 90.14, with the euro also nearly unchanged at $1.2176.

The message that’s begun to resonate with investors is that central bank policymakers are going to brush off high short-term prices, and that’s led to a lower U.S. dollar, said Adam Button, chief currency analyst at ForexLive in Toronto.

The inflation numbers are going to run hotter than what they anticipate in the short term, but there’s a rock-solid central bank consensus around transitory inflation, he said.

The dollar advanced 0.1% against the yen to 109.62 yen, while sterling dropped 0.3% to $1.4111.

The pound fell as Britain and the European Union (EU) failed to agree on solutions to post-Brexit trade problems in Northern Ireland, and exchanged threats in a standoff that could claim the G7 international summit.

Deutsche Bank’s Currency Volatility Index hit its lowest level since February 2020 on Tuesday, and slipped further on Wednesday.

While the ECB is expected to keep policy settings steady, the euro could be sensitive to changes in the bank’s economic forecasts or any signal that the pace of bond buying could be reduced in months ahead.

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