The dollar barely budged against the euro, yen and pound on Tuesday ahead of U.S. inflation data, while the Australian dollar and Chinese yuan ticked higher after reassuring export numbers from Beijing.
The possibility of U.S. stimulus withdrawal – brought to the fore by a surprise shift in tone last month from the Federal Reserve – has boosted the dollar in recent weeks despite a renewed rise in coronavirus cases in many parts of the world.
With U.S. consumer price inflation later likely to feed the debate, the greenback was virtually unchanged versus the euro at $1.1856 after its more than 2% rise versus the common currency over the last month.
Economists poll expect the U.S. CPI to have risen 0.5% from May and 4.9% from a year earlier. Dealers reckon a miss on either side could move the dollar and the bond market by shifting expectations on interest rates.
Analysts at JPMorgan said central banks around the world are becoming increasingly more hawkish at the moment with a few notable exceptions – the European Central Bank, the Bank of Japan and People’s Bank of China, which made an dovish adjustment on Friday.
“Monetary policy divergence remains a tradable theme both in G10 and EM,” JPMorgan’s analysts said. “In the portfolio, we stay long USD vs euro, yen, Swiss franc; overweight Czech crown vs Romanian leu and overweight Brazilian real, Mexican peso vs Colombian and Chilean pesos.”
Top European Central Bank policymakers, including both its President and Vice President, flagged on Monday that the bank would stay supportive and is readying new “forward guidance” for next week to take into account a newly-tweaked 2% inflation target.
“We expect another firm CPI in both the core and headline,” RBC’s Global Head of FX Strategy Elsa Lignos said.
She added it might mark a “high point” for the figures. “However, we are less interested in when the peak is and much more interested in how enduring price pressures are likely to be.” .
Chris Weston, head of research at broker Pepperstone, said a headline CPI number below 4.5% should see USD/JPY and USD/CHF come under some pressure. The data is due at 1230 GMT
In early London trading, the Japanese yen last stood at 110.36 per dollar. The Swiss franc was steady at 0.9146 per dollar, close to a one-month high. The Australian dollar rose slightly to $0.7490 and sterling was flat at $1.3875.
Elsewhere, China’s yuan rose to a near one-week high after surprisingly strong trade data eased fears about a slowdown in what has been one of the world’s strongest economic recoveries.
Exports in dollar terms rose 32.2% in June from a year earlier, compared with 27.9% growth in May.
“Exports surprised on the upside in June, shrugging off the impact of the temporary Shenzhen port closure and other supply chain bottlenecks,” said Louis Kuijs, head of Asia economics at Oxford Economics.
Beyond U.S. inflation numbers later, further tests loom for the dollar with Fed head Jerome Powell testifying before Congress on Wednesday and Thursday while officials Neel Kashkari, Raphael Bostic and Eric Rosengren make appearances on Tuesday.
Traders are also looking to New Zealand on Wednesday, when inflation data is due and the central bank meets for the first time since a strong business survey prompted swaps markets to price in rate hikes beginning as soon as November.
The Reserve Bank of New Zealand is not expected to change policy or publish forecasts, but a guidance tweak is possible.
“The narrative should endorse current market pricing,” Westpac analyst Imre Speizer said in a note, a move which he said could give the kiwi a slight lift.
The New Zealand dollar was last up 0.1% at $0.6993, just below its 20-day moving average.