NEW YORK, Sept 13 ― The dollar fell to its lowest level in more than two weeks against a basket of currencies yesterday following recent strong gains, as investors grew nervous ahead of US inflation data and as central banks outside of the United States appeared increasingly hawkish.
The euro climbed to more than a three-week high against the dollar, with European Central Bank officials arguing for further aggressive monetary tightening.
Strategists said the release today of the monthly US consumer price index report will be closely watched for clues on how aggressive the Federal Reserve may need to be in hiking interest rates next week to fight high inflation.
The Federal Open Market Committee ― the Fed's policy-setting arm ― is expected at its September 20-21 meeting to raise the central bank's benchmark overnight lending rate again from the current range of 2.25 per cent -2.50 per cent.
The dollar index, which measures the currency against six major counterparts, has been strengthening on expectations of an aggressive Fed and reached a two-decade peak of 110.79 last Wednesday. Yesterday, it was down 0.4 per cent on the day at 108.31 after hitting its lowest since August 26.
“It's been a break in the dollar's relentless rise,” said Joe Manimbo, senior market analyst at Convera.
“What's behind that basically is improved risk sentiment, hawkish central banks from abroad and hopes that US inflation will suggest that the worst is behind us, (with) consumer prices coming out tomorrow.”
“One of the things that's helped to limit bouts of dollar weakness is signs of a resilient US economy,” Manimbo added.
The New York Fed's monthly consumer expectations survey showed yesterday that US consumers' inflation expectations slid further in August as gasoline prices extended their steep decline from June's record high, a development likely to be bring some relief to US central bank officials who have been worrying that the highest inflation in 40 years might change consumers' perceptions of how sticky the current price shocks may be.
The euro rose against the dollar to its highest level since August 17. It hit a 20-year trough of US$0.9862 (RM4.45) last week.
The euro was last up 0.7 per cent at US$1.0117.
ECB policymakers see increasing risks that the central bank will need to hike its key interest rate to 2 per cent or more to curb record inflation in the euro zone, sources told Reuters.
At the same time, the Ifo institute said yesterday, in a U-turn from its forecast three months prior, that Germany's economy will contract next year as a dramatic rise in energy costs due to the Ukraine war extinguishes the chances of recovery after Covid-19 lockdowns.
Against the dollar, sterling was last trading at US$1.1681, up 0.8 per cent on the day and up from last week's 37-year low.
The dollar was up slightly against the Japanese yen, at ¥142.75, but off its 24-year high of 144.99 hit last week.
Over the weekend, Japanese officials hinted at intervention to stop the currency from weakening further. A senior government spokesman said in a local television interview that the administration must take steps as needed to counter excessive yen declines.
The Australian dollar was 0.6 per cent higher at US$0.6883.
In cryptocurrencies, bitcoin last rose 2.69 per cent to US$22,422.00, while Ethereum was down 2.3 per cent at US$1,726.
Investors will be watching the area as the Ethereum blockchain is due to merge with a separate blockchain, altering the way it processes transactions and how new ether tokens are created. ― Reuters