Dollar steadies amid virus concerns; inflation in focus

London

THE safe haven dollar ticked up against most currencies on Monday as concerns about the pandemic made investors cautious, while they also awaited more clues about the global economic recovery before making their next moves.

With markets hyper-sensitive to any talk of early tapering, US inflation data on Tuesday will be closely watched ahead of testimony by Federal Reserve Chair Jerome Powell on Wednesday and Thursday.

Meanwhile, the People's Bank of China's surprise policy easing on Friday, meant to boost the post-Covid economic recovery, failed to provide lasting momentum.

"While welcome, the move also signals that the authorities are concerned about China's growth prospects, so it's mixed news," said Marshall Gittler, head of investment research at BDSwiss Holding.

The yuan was just slightly lower at 6.4750 per dollar after Chinese shares and bonds rose.

Economists polled by Reuters expect US consumer prices for June to have risen 0.4 per cent from May, and 4.0 per cent from a year earlier, after two straight months of sharp gains.

Any signs that inflation could be more persistent than previously thought could fan expectations the Fed may exit from current pandemic-era stimulus earlier, supporting the dollar against other major currencies.

Conversely, more benign data could lead investors to think the US central bank can afford to maintain an easy policy framework for longer, encouraging more bets on risk assets, including risk-sensitive currencies.

At 1108 GMT, the dollar was up 0.22 per cent against a basket of currencies while the euro lost 0.26 per cent at US$1.1848 against the greenback.

Sterling fell 0.36 per cent to US$1.3860 while British Prime Minister Boris Johnson is expected to confirm plans to remove nearly all remaining Covid-19 restrictions in England from July 19, despite a surge of cases to levels unseen for months.

Colin Asher, senior economist at Mizuho in London, said: "There are expectations the Bank of England may be one of the major banks to hike interest rates next year."

Although few investors expect the global economic recovery to be derailed by fresh waves of Covid-19 infections, vulnerable currencies such as the tourism-exposed Thai baht have taken a hit.

The baht was trading above Friday's low but has lost about 5 per cent against the dollar in a month, and on Monday Thailand's central bank warned the economy may miss its projections as virus curbs hit growth. REUTERS