NEW YORK/LONDON: The US dollar was down slightly on Tuesday after coming back from a dip that nearly wiped out its gains from the day before as markets jostled with the different paths major central banks will choose to fight inflation and the pandemic’s economic drag.
The US dollar index was down less than 0.1% to 96.315 in midmorning trading in New York after having earlier given up much of its Monday gain of 0.3%.
New US producer price data released earlier in the day affirmed market expectations that the US Federal Reserve will announce on Wednesday that it will quicken its withdrawal from bond purchases.
The report showed factory gate inflation at 11-year highs.
“It’s clear the Fed needs to react to higher inflation,” said David Riley, chief investment strategist at BlueBay Asset Management. “It’s an environment where it’s very hard not to be positive on the US dollar,” he said.
Markets have been pricing for the Fed to wrap up bond-buying around March and proceed with rate hikes.
“We have a decent long dollar position based on what we expect the Fed to do,” said Charles Diebel, head of fixed income at Mediolanum International Funds.
The euro and the British pound gained on the dollar.
The euro firmed 0.1% to $1.1294 after touching a one-week low of $1.12605 overnight. Germany’s Ifo institute on Tuesday predicted the German economy to shrink by 0.5% quarter-on-quarter in the final three months of this year and to stagnate in the first three months of next year.
Sterling gained 0.2% to $1.323 after data showed employers hired a record number of staff in November.
But the Japanese yen lost ground, with the dollar trading at 113.69 yen at 1520 GMT.
Commodity-associated currencies, including the Australian and Canadian dollar, lost about 0.1% to 0.2% of their value to the greenback as oil prices dropped toward $73 a barrel. The International Energy Agency (IEA) said that the Omicron coronavirus variant is set to dent the global demand recovery.
Exchange rates have been moving with changing expectations for interest rate differences across currencies.
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