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Dollar slips as traders view rising inflation as temporary

 


The dollar index fell slightly on Friday and major currency pairs remained stuck in recent ranges as markets ignored Thursday’s high U.S. inflation figure, saying the Federal Reserve’s stance is likely to fall. ‘be a temporary accident.

Consumer prices in the United States rose 5% year-on-year in May, the biggest jump in nearly 13 years. read more Currency markets have been sluggish all week ahead of the data, but when they came in above expectations, there was little market reaction.

The Federal Reserve has repeatedly stated that it expects any rise in inflation to be temporary and that it is too early to discuss reducing its monetary stimulus.

The dollar index edged down during the Asian session and at 07:23 GMT, was down 0.1% on the day to 89.995. He was on track for a small weekly loss of around 0.2%.

Benchmark 10-year US Treasuries actually hit a three-month high in the wake of the CPI, as short sellers stopped betting on rising yields.

“We agree with the Fed that the high inflationary pressures will be short-lived,” UBS strategists said in a note to clients.

“Policymakers at the Federal Reserve and the European Central Bank have been exceptionally consistent in stressing that policy will only need to be tightened if inflation becomes more sustained, which they currently consider unlikely.”

There were signs of a slightly increased risk appetite in forex markets, with the Australian dollar rising 0.2% to $ 0.7768 and the New Zealand dollar 0.1% to 0. $ 7,204.

But the British pound remained stable at $ 1.41695.

LIQUIDITY GLUT

An accommodating stance by the ECB at its Thursday meeting had little effect on the euro, which was flat on the day at $ 1.2181 and forecast for a small weekly gain of around 0.1%.

The ECB said it would continue its emergency bond purchases at a “significantly higher” pace, even if it increased its growth and inflation projections. Read more

A gauge of implied euro-dollar volatility over a six-month horizon was at its lowest since early March 2020, almost back to levels it had before the COVID-19 pandemic caused volatility to spike .

“This excess liquidity lowers volatility levels in all asset classes and stimulates the search for carry, including at the long end of yield curves,” ING strategists wrote in a note. In currency trading, “carry” refers to gains resulting from holding higher yielding currencies.

“This environment should continue to see the dollar offered soft against currencies with good stories (monetary tightening or exposure to commodities) and some carry,” said ING.

In Russia, the central bank is expected to increase its interest rate by 5% to 50 basis points – its third consecutive rate hike. Read more

The central bank is targeting annual consumption inflation of 4%. It exceeded the target at the end of 2020 in a context of global inflation and as the weaker ruble was passed on to prices.

Elsewhere, Bitcoin recovered slightly while Ether was forecast for a weekly decline of 10%. Both have stabilized so far this month, but are still trading well below their mid-May highs.

Attention now turns to the Fed meeting next week. The central bank is expected to announce a strategy to cut its massive bond buying program in August or September, but will not start cutting monthly purchases until early next year, according to a Reuters poll of economists . Read more

Meanwhile, leaders of the wealthiest economies in the Group of Seven meet on Friday in the English seaside resort of Carbis Bay. Read more

Our standards: Thomson Reuters Trust Principles.

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