FX volatility at Feb 2020 lows with dollar gaining slightly

NEW YORK: The US dollar edged up slightly and currency market volatility on Tuesday fell to its lowest level in more than a year, as investors sat on the sidelines waiting for clearer signals on central bank policy and inflation levels.

With an impending European Central Bank meeting on Thursday and US inflation data due the same day, and a US Federal Reserve meeting next week, currencies appeared to be treading water while the S&P 500 dipped very slightly.

Range-bound currency markets mean a fall in volatility. The Deutsche Bank Currency Volatility Index hit its lowest level since February 2020.

"The reasons we're rangebound today on the dollar overall is we've a lot of option expiries in play," said Erik Bregar, head of FX strategy at Exchange Bank of Canada. "The big events of the week are going to be the Bank of Canada meeting tomorrow and Thursday's session has US CPI (consumer price index), ECB meeting and a big 30-year US bond auction."

Traders on Tuesday sent longer-term US Treasury yields to their lowest in more than a month after a report showed small business owners less confident, and narrowing the spread of a closely watched part of the yield curve.

The US dollar found a bit of support on Tuesday as investors prepared for the inflation data after Friday's weaker-than-expected jobs data, which has eased concerns about an early tapering of the Federal Reserve's monetary stimulus.

The euro fell marginally as data showed German industrial production numbers declined in April.

The dollar index rose 0.15% to 90.107, while the euro fell 0.13% against the greenback at $1.2174.

The British pound fell 0.34% to $1.4126 and the Australian dollar eased 0.25% to $0.7735 , with both stuck in ranges seen over the past couple of months.

Cryptocurrencies dropped but trading was generally calm. Bitcoin was last down 2.99% at $32592.63 , while ether fell 5% to $2,457.78.