Precise Investors

Sunday, January 29, 2023

Dollar near two-week lows after soft U.S. inflation figures


According to the latest data on Wednesday, U.S. core inflation last month was zero compared with market expectations of 0.2%

The dollar was pinned near two-week lows on Thursday, as softer-than-expected U.S. inflation and another Federal Reserve promise to keep interest rates low reinforced expectations of meagre returns from the reserve currency.

The Australian dollar sat just below a two-week top touched overnight, while the euro held at $1.2116, near its highest since Feb. 1. Sterling, also boosted by receding expectations for negative interest rates in Britain, sat just shy of Wednesday’s nearly three-year peak of $1.3865.

Morning moves were slight and Asia trade was thinned by Lunar New Year holidays in Japan and China. Against a basket of currencies the dollar sat at 90.428 after touching a two-week trough of 90.249 in the wake of U.S. inflation figures.

U.S. core inflation last month was zero, data showed on Wednesday, against market expectations of 0.2%.

In a speech, Fed Chair Jerome Powell focused on still-high unemployment and re-iterated that the central bank’s new policy framework could accommodate annual inflation above 2% for some time before hiking rates.

In other words, easy policy is going to stay there for a long, long time, and that should be negative for the U.S. dollar, said Westpac currency analyst Imre Speizer. I think it’ll be something that sits in the background, as just a reminder that the U.S. dollar can’t go up while it’s got that easy policy relative to everybody else.

The dollar had pared some of its losses against other majors a little bit after a selloff in U.S. tech stocks dampened financial markets’ upbeat mood. The safe-haven Japanese yen hit a two-week peak of 104.41 per dollar overnight and last traded a fraction softer at 104.62 per dollar.

Bitcoin, sometimes viewed as a hedge against inflation, has dropped about 8% from Tuesday’s record high and traded at $44,277 on Thursday.

Inflation is under the spotlight as economists expect pent-up demand and a low-base effect from last year’s shocks to drive jumps in headline figures by the spring time, which some investors think could test the Fed’s resolve.


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