Dollar Up, Inflation Remains on Investors’ Minds

By Gina Lee

Investing.com – The dollar was up on Thursday morning in Asia but continued to hover near two-week lows. Weaker-than-expected U.S. inflation and a promise from the Federal Reserve to keep interest rates low continued to raise investor expectations of meagre returns from the U.S. currency.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.01% to 90.415 by 9:53 AM ET (2:53 AM GMT). The index dropped to a two-week low of 90.249 after the release of the U.S. inflation data.

The USD/JPY pair inched up 0.03% to 104.60.

The AUD/USD pair inched up 0.03% to 0.7723, with the AUD just below the two-week high against the dollar touched during the previous session. The NZD/USD pair inched down 0.06% to 0.7209.

The USD/CNY pair was up 0.37% to 6.4582.

The GBP/USD pair inched up 0.05% to 1.3834. The pound was also boosted by diminishing expectations for negative interest rates in the U.K. and climbed towards a nearly three-year high.

In Asia, moves were slight in Japan and China, with both markets closed for holidays.

U.S. inflation data released on Wednesday showed that the core Consumer Price Index (CPI) was flat month-on-month, against the predicted 0.2% growth and the 0.1% growth recorded in December.

Fed Chairman Jerome Powell also noted that unemployment was still high, and re-iterated that the central bank’s new policy framework could accommodate annual inflation above 2% for some time before hiking rates, in his speech on Wednesday.

“In other words, easy policy is going to stay there for a long, long time, and that should be negative for the U.S. dollar,” Westpac currency analyst Imre Speizer told Reuters.

“I think it’ll be something that sits in the background, as just a reminder that the U.S. dollar can’t go up while it’s got that easy policy relative to everybody else,” Speizer added.

Inflation remains a concern, with predictions that pent-up demand and a low-base effect from 2020’s shocks will drive jumps in headline figures by spring. Such a scenario could test the Fed’s resolve.

Investors looked to New Zealand, where COVID-19 is firmly under control, but surging housing prices have pushed inflation above expectations. Investors have pared back further rate cut expectations in response.

“The Reserve Bank of New Zealand (RBNZ) arguably face quite a different communication challenge (to the Fed), with the demand pulse in New Zealand in a much better position than anyone dared hope,” ANZ Bank analysts said in a note.

“RBNZ will welcome this but continue to highlight the need for cautious patience,” the note added.

In Europe, investors await the release of the European Commission economic forecasts, due later in the day.

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