FOREX-Dollar drops, Euro rises ahead of US CPI report
Band Hannah Lang and Herbert Lash
NEW YORK, February 9 (Reuters) – The dollar slid further and the euro extended its gains following a hawkish turn from the European Central Bank last week and ahead of key US consumer price data due on Thursday.
The CPI print could offer further guidance on the pace of monetary tightening by the Federal Reserve, and investors are bracing for higher-than-expected numbers that would signal more aggressive rate hikes.
That reading is expected to show an increase of 0.5% month-on-month in January and 7.3% for the year, according to economists polled by Reuters.
Investors revised their expectations for an ECB rate hike after the bank caught them off guard last week, with President Christine Lagarde signaling for the first time that monetary tightening was a possibility this year.
Seeking to temper rising investor expectations for hardline action, Lagarde calmed markets when she said on Monday that a major tightening was unnecessary.
But the big shift in central bank policy expectations over the past week, particularly from the ECB, has dampened the dollar’s recent rise.
As markets analyze Lagarde’s comments and what Thursday’s inflation numbers mean for the Fed, the dollar is likely to remain in a range, said Thomas Anderson, chief executive of Moneycorp.
“I think the market is scratching its head and saying, ‘Okay, corporate earnings are over,’ Lagarde comments – we’re still scratching our heads. Does that mean this is the inflection point and we’re going up from here?’” he said.
The dollar index =USD fell by 0.103%, the euro EUR= up 0.16% to $1.1432.
As markets wait for clarification, the dollar and euro “consolidated in yesterday’s ranges,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
“I think the bottom line for the ECB and the Fed is that there’s a lot of uncertainty, and so they want to maintain maximum flexibility,” he said. “The Fed and the ECB must maintain their flexibility and people read what they want there.”
Cleveland Fed Chair Loretta Mester said Wednesday that future rate hikes after March will depend on how strong inflation is and whether it moderates or persists.
Also on Wednesday, Atlanta Fed President Raphael Bostic said the U.S. economy could be approaching a drop in inflation, though he added it was still leaning toward a slightly slower pace. fastest rate hike this year.
Currency rates at 2:59 p.m. (1959 GMT)
Closing of the previous session
Percentage change since the beginning of the year
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(Reporting by Hannah Lang and Herbert Lash, additional reporting by Joice Alves; Editing by Peter Graff, Gareth Jones and Alex Richardson)
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