US dollar holds steady as investors wait for Fed guidance
THE US dollar was broadly steady on Monday (May 20) as investors awaited further clues to help chart the path of US interest rates in the wake of cautious comments from Federal Reserve officials, even as inflation showed signs of cooling.
The euro was little changed at US$1.0865, not far from the nearly two-month high of US$1.0895 it touched last week. It is up 2 per cent so far in May, boosted by a fall in the dollar on the back of softer US growth and inflation data, as well as a pick-up in the eurozone economy.
Data last week showed US consumer prices rose less-than-expected in April, leading to markets pricing in 50 basis points of Fed rate cuts this year.
Yet various Fed officials subsequently sounded words of caution about when rates may fall, prompting market pricing to fall just below the 50 bp mark.
The dollar index, which tracks the currency against six major peers, was last slightly higher at 104.51. It has fallen around 2 per cent since hitting a more than five-month high in April.
Neil Jones, who works in financial institutions FX sales at currency services firm TJM FX, said a “barrage” of speeches from Fed officials will keep investors alert this week.
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“If the market trends quite firmly in one direction or the other (on interest rate cut bets), then the tendency of Fed speakers is to act somewhat contrarian in their commentary,” he said.
Markets will also focus on minutes of the Fed’s last meeting due on Wednesday.
Survey-based gauges of the economy for the eurozone, Germany, the UK and the US are also due this week, alongside more central bank speeches.
Sterling touched a two-month high of US$1.2711, and was last just below that level, ahead of a UK inflation report due on Wednesday.
The Japanese yen was flat at 155.73 per dollar, with traders on alert for signs of government intervention. The currency has moved in tight ranges in the past couple of trading days after a tumultuous start to May in the wake of suspected rounds of currency interventions by Tokyo to prop up the yen.
Jones said he expects a rally in gold and copper to support the currencies of commodity-exporting countries such as Australia in the coming months.
The Australian dollar was flat at US$0.6687 but has risen 3.3 per cent this month, amid high Australian inflation.
Tight supply, sustained global demand and big bets by speculators have sent copper prices soaring in recent weeks.
Oil prices were slightly higher on Monday after a helicopter crash killed the president of Iran, while Saudi Arabia’s king faces health issues, raising the prospect of more instability in the Middle East. REUTERS
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