Dollar near three-month low, weighed down by accommodative Fed tilt

TOKYO: The dollar has remained close to its lowest level in three months against a reborn euro, and traders have reduced previous bets, the Federal Reserve may soon reduce its stimulus although markets are not fully convinced that higher US inflation is transitory.

The dollar index, measuring the greenback against a basket of six currencies, hovered at 90.045, slightly above the three-month low of 89.646 set on Friday.

The minutes of the April Fed policy meeting released last week showed that a significant minority of policymakers were keen to discuss reducing bond buying, fearing that pouring more money into a shrinking economy. healing path cannot fuel inflation.

Yet repeated comments from Fed Chairman Jerome Powell that it is not yet time to discuss a reduction in quantitative monetary easing has led many investors to believe it will be months before. that the central bank does not really change its policy.

“Inflation numbers have been pretty strong but retail sales may start to slow. And the economic outlook hinges on fiscal policy, which is still uncertain,” said Shinichiro Kadota, senior currency strategist at Barclays.

The White House said on Friday it had cut its infrastructure bill to US $ 1.7 trillion from US $ 2.25 trillion, with cuts to investment in broadband, roads and bridges, but Republicans rejected the changes as insufficient for a deal.

With investors concerned about threats of accelerating inflation, the US PCE (personal consumption expenditure) data, due Friday, is seen as one of the biggest tests for the markets this week.

The euro traded at US $ 1.2179, stable so far on Monday and after a three-month high of US $ 1.2245 hit on Wednesday.

Some analysts said the currency was capped by comments from European Central Bank President Christine Lagarde on Friday that it was still too early for the bank to discuss winding up its purchase program. emergency bonds of 1.85 trillion euros.

Still, the euro and other European currencies have been bolstered by growing optimism about economic reopenings in the region following coronavirus lockdowns.

A preliminary purchasing managers’ index covering the dominant services industry in the 19-country eurozone, released on Friday, rebounded to 55.1 from 50.5 in April, well above expectations and its highest since June 2018.

“Although the United States led the economic reopenings in the first quarter, Europe is catching up and still has room for improvement, supporting the euro,” said Jun Arachi, currency strategist at Rakuten Securities.

In fact, speculators have increased bets against the dollar, preferring other currencies including the euro, in recent weeks.

Data from the US Commodity Futures Trading Commission released on Friday night showed speculators slightly increased their net dollar short positions over the past week while raising long positions, both to their highest level since mid- March.

The British pound settled at US $ 1.4144, following Friday’s three-month high of US $ 1.4233.

The yen was little moved at 108.92 per dollar, trapped between a high of 109.785 hit after high US inflation and a low of 108.34 following weak US wage data, both hit earlier this month -this.

In the volatile cryptocurrency market, bitcoin fell more than 7% over the weekend to last trading up 2.4% to $ 35,528, after falling to $ 31,107 at a low. given time on Sunday.

Ether fell to a two-month low of US $ 1,730 on Sunday, down 60% from a record high just 12 days ago, and hit US $ 2,178, up 3, 8%.

Cryptocurrencies fell after Elon Musk’s Tesla said he would stop accepting bitcoin and after China cracked down on them further.

(Reporting by Hideyuki Sano; Editing by Sam Holmes & Shri Navaratnam)

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