US dollar set for second consecutive monthly loss

London

THE US dollar came under pressure on Monday, heading for its second consecutive monthly loss against the euro and the pound, as traders assessed the impact of a surge in US inflation before monthly jobs data later this week.

The dollar index of major currencies fell 0.03 per cent to 90.058 at 1127 GMT.

On Friday, data showing a key measure of US inflation at a 29-year high briefly boosted the dollar to a two-week high.

The euro was flat at US$1.2189, off May 28's low of US$1.2133. The British pound edged 0.1 per cent lower at US$1.4178.

In holiday-thinned trade, investors weighed the impact on US assets of rising price pressures and a dovish Federal Reserve.

Despite rising inflation, markets do not expect a rate hike well into the back end of 2022.

The core personal consumption expenditures (PCE) price index vaulted 3.1 per cent on May 28, the largest annual gain since July 1992, due to a recovery from the pandemic and various supply disruptions.

The market considers the current inflation levels in the US to be transitional. Next year's US inflation will remain at 2.5 per cent, Ulrich Leuchtmann, Commerzbank's head of FX and commodity research wrote in a note.

"That does not make it any easier pricing USD," he said.

"Until we have more clarity, the dollar is likely to have found a good balance at current levels".

Speculators increased their bets against the dollar last week with US dollar short positions hitting a 21/2 month high.

The Chinese yuan hit a three-year high against the dollar before falling back following warnings from Chinese officials against speculative bets on the currency.

The offshore yuan changed hands at 6.3741 per dollar after touching overnight its highest since May 2018 of 6.3553 per dollar.

In volatile cryptocurrencies, Bitcoin was 3.7 per cent higher at US$36,978. Ether rose 7.7 per cent to US$2,576.

The main event of the week will be US payrolls on Friday with median forecasts at 650,000, but the outcome is uncertain following April's shockingly weak 266,000 gain. REUTERS