SINGAPORE (Reuters) – The dollar started the week on a steady note as investors focused on U.S., European and Japanese inflation data for guidance on the outlook for global interest rates.
FX trading in recent months has been dominated by a hunt for “interest rate differentials” that have punished low-rate currencies and supported the dollar, while U.S. data has waxed and waned, undermining policymakers’ confidence in the outlook for interest rates. .
Several major currency pairs are trading within tight ranges. EUR/USD rose 0.9% last week and is now in the middle of a more than year-long range at $1.0846. Trading was thin on Monday due to holidays in the United Kingdom and the United States.
German inflation data on Wednesday and euro zone data on Friday will be watched for confirmation that traders are expecting a rate cut in Europe next week.
Sterling is testing the upper end of the range it has maintained this year at $1.2735. The Australian and New Zealand dollars have retreated from their recent highs as markets have dialed back expectations for a U.S. interest rate cut, with AUD/USD at $0.6626 and AUD/USD at $0.6122.
Friday’s core personal consumption expenditures price index, the Fed’s preferred measure of inflation, is expected to remain stable month-on-month, so surprises either way could impact money markets.
The dollar retreated somewhat after data showed consumer price rises slowed in April and retail sales disappointed, but it strengthened last week on better-than-expected PMI survey data.
“The focus on core personal consumption spending is whether inflation drivers are part of a shift in consumer sentiment,” said Bob Savage, head of market strategy and insights at BNY Mellon (NYSE: BNY Mellon).
continue
While interest rate uncertainty remains, investors have been chasing yield and selling low-yielding currencies such as the yen, yuan and Swiss franc against the euro and dollar.
The Swiss franc has been falling all year, hitting a low of 0.9928 Swiss francs per euro last week. Last week’s closing price was below $7.24, the lowest level since early May.
The yen may have posted its first monthly gain this year due to suspected intervention by Japanese authorities in late April and early May, but has since fallen back to multi-decade lows.
USD/USD was steady at 156.87 on Monday but drew little support from a rise in 10-year Japanese government bond yields, for example, as they remain nearly 350 basis points below U.S. yields.
Tokyo’s consumer price index (CPI), released on Friday, is a reliable guide to national trends and will be closely watched. A U.S. move to shorten stock market settlement times from two days to one will also be closely watched in currency trading this week, as traders expect it could push early-morning trading in Asia into a lull.
“It remains to be seen how each bank or liquidity provider will respond once the T+1 changes come into effect and actually be required to execute large-scale FX trades in a time frame that currently does not see such volumes,” said Scott Gold. , Sales Director of trading technology platform BidFX.
“Currently, only about 0.6% of FX trading volume is executed between 4pm and 6pm (New York time), so liquidity is very thin and spreads are quite wide.”
In the cryptocurrency market, ether posted its biggest weekly gain in nearly three years after some U.S. exchange-traded fund (ETF) applications received unexpected approval.
Further approvals are still needed before launch, but the price of the second-largest cryptocurrency by market capitalization rose 25% against the dollar last week and was last at $3,836.
“A month ago, many thought the likelihood of an ETH ETF was low or remote,” said Justin D’Anethan, head of partnerships at digital asset market maker Keyrock.
