[ad_1]
The dollar index fell Friday and major currency pairs remained within recent ranges as markets shook off Thursday’s high US inflation, believing the Federal Reserve’s stance would likely be a temporary blowout.
US consumer prices rose 5% year on year in May, the largest jump in nearly 13 years. read more Foreign exchange markets were sluggish all week in anticipation of the data, but when it came in ahead of expectations, there was little market reaction.
The Federal Reserve has repeatedly said that it expects any rise in inflation to be temporary and that it is too early to talk about reducing its monetary stimulus.
The dollar index fell during the Asian session and at 0723 GMT, fell 0.1% on the day to 89.995. It was on track for a small weekly loss of about 0.2%.
Benchmark US 10-year Treasuries actually rose to a three-month high after the CPI, as short sellers stopped betting on rising yields.
“We agree with the Fed that the heightened inflationary pressures will be short-lived,” UBS strategists said in a note to customers.
“Policymakers from both the Federal Reserve and the European Central Bank have been unusually consistent in stressing that policy should only be tightened if inflation becomes more sustainable, which they currently view as unlikely.”
There were signs of slightly increased risk taking in foreign exchange markets as the Australian dollar rose 0.2% to $0.7768 and the New Zealand dollar rose 0.1% to $0.7204.
But the British pound held steady at $1,41695.
LIQUIDITY GLUT
A calm stance by the ECB at its Thursday meeting had little effect on the euro, which flattened at $1.2181 on the day and delivered a small weekly gain of around 0.1%.
The ECB said it would continue its emergency bond purchases at a “significantly faster” pace, even as it raised its growth and inflation forecasts. read more
A gauge of the implied volatility of the euro-dollar over a six-month horizon was its lowest since early March 2020, almost back to levels before the COVID-19 pandemic increased volatility.
“This abundance of liquidity is leading to lower levels of volatility in all asset classes and fueling the search for carry, including at the long end of yield curves,” ING strategists wrote in a note. In currency trading, “carry” refers to profit from holding higher yielding currencies.
“In this environment, the dollar should be tendered cautiously against those currencies with good stories (monetary tightening or exposure to commodities) and some carry,” ING said.
In Russia, the central bank is expected to raise its 5% interest rate by as much as 50 basis points – the third rate hike in a row. read more
The central bank aims for annual consumer inflation of 4%. It climbed above target in late 2020 amid global inflation and as the weaker ruble seeped into prices.
Elsewhere, Bitcoin recovered slightly, while Ether was set for a weekly decline of 10%. Both have stabilized so far this month, but are still trading significantly below their mid-May peaks.
Attention now turns to next week’s Fed meeting. The central bank is likely to announce a strategy to reduce its massive bond-buying program in August or September, but won’t begin cutting monthly purchases until early next year, a Reuters poll of economists shows. read more
Meanwhile, leaders of the Group of Seven Richest Economies will meet Friday in the English seaside town of Carbis Bay. read more
Our standards: The Thomson Reuters Trust Principles.
[ad_2]
picture credit