Dollar Down, but Near Four-Month High as U.S. Data Cools Fed Taper Expectations

The dollar was down on Thursday morning in Asia. However, the U.S. currency held near a four-month peak as the U.S.’ latest inflation data tempered bets of an earlier-than-expected tightening of its monetary policy.

Dollar Down, but Near Four-Month High as U.S. Data Cools Fed Taper Expectations
Credit: © Reuters.

The dollar was down on Thursday morning in Asia. However, the U.S. currency held near a four-month peak as the U.S.’ latest inflation data tempered bets of an earlier-than-expected tightening of its monetary policy.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.02% to 92.898 by 1:08 AM ET (5:08 AM GMT). It fell 0.19% on Wednesday when it rose as high as 93.195, a level not seen since Apr. 1.

The USD/JPY pair was steady at 110.41.

The AUD/USD pair inched down 0.09% to 0.7365, with Australia’s Canberra entering a lockdown and Sydney aiming to tighten its existing restrictive measures. The NZD/USD pair edged down 0.11% to 0.7033.

The USD/CNY pair inched down 0.04% to 6.4757% and the GBP/USD pair inched down 0.01% to 1.3871.

Data released in the U.S. on Wednesday said the core consumer price index (CPI) rose 0.3% month-on-month in July, a pace that was slower than expected. With the labor market recovery a condition for the U.S. Federal Reserve to begin asset tapering and hiking interest rates, the debate on whether the current inflationary pressures are transitory continues.

Kansas City Fed President Esther George said on Wednesday that conditions are already in place to begin asset tapering, thanks to the current spike in inflation, recent labor market improvements, and the expectation for continued strong demand.

Dallas Fed President Robert Kaplan told CNBC that the Fed should announce its timeline for asset tapering in September and begin the process a month later. Richmond Fed President Thomas Barkin told Reuters it could take a few more months before the U.S. job market is sufficiently recovered.

However, some investors still expect the Fed to announce a tapering of stimulus within 2021, potentially as soon as September.

"The general consensus emanating from the Fed currently is that the time to taper asset purchases is nearing," Commonwealth Bank of Australia (OTC:CMWAY) strategist Kim Mundy wrote in a research note.

"Growing expectations for a near-term taper can support the dollar,” the note added, with Mundy expecting an asset tapering announcement in September depending on the strength of August’s labor market data.