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The dollar fell slightly against a basket of major currencies on Monday, but its movements were largely muted as traders awaited a much-anticipated US Federal Reserve meeting later this week that could signal a change in the outlook for the U.S. US monetary policy.
Currency markets have settled into narrow ranges with implied volatility plunging to multi-year lows after strong inflation readings last week and an accommodating European Central Bank meeting failed to dislodge currencies recent bargaining levels.
“It’s all about the FOMC this week, and we’ll be watching to see exactly how many discussions have actually taken place and if that has an impact on the medium-term outlook,” Brad Bechtel, global head of foreign exchange at Jefferies, said in a note. .
“I guess (Federal Reserve Chairman Jerome) Powell is kicking the box deftly once again and pushing the deadline for any ‘real’ conical conversation later in the summer,” Bechtel said.
The dollar index, which measures the greenback against a basket of six currencies, rose 0.1% to 90.427. Last week, the index rose 0.4%, its largest weekly change in five weeks.
Muted currency moves over the past few weeks crushed Deutsche Bank’s FX volatility index (.DBCVIX) to 5.6 on Friday, its lowest in nearly 16 months.
“Many currency pairs have been in incredibly narrow ranges for weeks, if not months, now and while we can’t see this continuing for too long, sadly it’s too difficult to call a probable team at this time.” said John Marley, CEO of forexxtra, a London-based currency advisory firm.
The Fed begins a two-day political meeting on Tuesday. Almost 60% of economists in a Reuters poll said a much-anticipated cut announcement would come in the next quarter, despite an uneven labor market recovery. Read more
Recent data indicating spike in inflation has raised concerns that price pressure following the post-COVID economic reopening may force policymakers to cut back on currency depreciation stimulus sooner.
Sterling was largely oblivious to Monday’s announcement that Britain should delay ending social distancing measures as the government seeks to contain a rapid rise in COVID-19 infections.
In cryptocurrencies, bitcoin traded above $ 40,000, for the first time in more than two weeks, after securing an almost 10% increase on Sunday, when the CEO of Tesla Inc (TSLA O) Elon Musk tweeted that the electric car maker would re-allow bitcoin transactions when miners who verify transactions use more renewable energy. Read more
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