Dollar slides as investors balance positions ahead of US inflation data

THE dollar fell to a more than 1-week low on Friday (Sep 9) as investors consolidated gains after a sharp rise against most currencies, ahead of a US inflation report that could determine the size of the Federal Reserve’s rate hike at this month’s policy meeting.

On the week, the dollar index posted its first weekly fall in on Friday. “Markets are getting a little nervous about levels, really historic levels, so the market decided not to push the dollar’s strength at this juncture and lightened up positions,” said Greg Anderson, global head of FX strategy, at BMO Capital Markets in New York.

The greenback last week soared to a 24-year high against the yen, a 37-year peak versus sterling, with the dollar index surging to a more than 20-year high. On Friday, the dollar index dropped as low as 108.35 and was last down 0.5 per cent at 108.96.

Capital Economics expects the CPI to continue to edge lower. “We think falling inflation in the US is consistent with our view that the backdrop remains favourable for the dollar, as it stands to benefit from higher real rates while the global economy slows,” Jonathan Petersen, Capital Economics senior markets economist wrote in its latest research note. A big gainer was the euro, which leapt as much as 1.2 per cent to a 3-week high of US$1.0114 , a day after the European Central Bank raised its key interest rate by an unprecedented 75 basis points (bps).

Currencies perceived as riskier bets also benefited from an improvement in market sentiment to end the week, reflected in gains across European and US stock markets. Sterling gained 0.8 per cent to US$1.1592, after a modest dip the previous day following the death of Queen Elizabeth. The Bank of England said on Friday it would delay its next monetary policy meeting by one week.

The Japanese yen posted its best daily gain in a month, up 1 per cent at 142.675 yen per dollar, as it clawed away from recent 24-year lows. The Australian dollar also had its best daily rise in a month, up 1.3 per cent versus the US dollar to US$0.6850, also rebounding from deep lows. REUTERS