LONDON/HONG KONG: The dollar edged loweron Friday as traders braced for U.S. inflation data that shouldguide the Federal Reserve’s policy tightening path, and afterthe European Central Bank said it would start its rate-hikecampaign next month.
The euro rose after Thursday’s fall but remained below whereit traded before the ECB meeting. The ECB said it would endquantitative easing on July 1, then raise interest rates by 25basis points on July 21. It flagged a bigger rate increase inSeptember.
U.S. core consumer price growth is expected to cool afraction, data later in the global day is set to show. Such anoutcome would provide some reassurance to those hopingdecades-high inflation had peaked in March and that the Aprilpullback was not a one-off.
This could give the Fed some wiggle room to raise rates lessaggressively later in the year as it tries to rein in inflationwithout tipping the economy into recession.
In the nearer term, markets expect the Fed next week toannounce the second of its three consecutive 50-basis-pointinterest rate hikes, which has boosted the dollar in recentmonths. Two-thirds of respondents to a Reuters poll of analystsexpected a further 25 basis point hike in September.
MUFG analyst Lee Hardman said he expected the dollar and theyen to benefit from another fall in investor sentiment, linkedto worries about global growth and the pace of central bankinterest rate hiking.
But he said the dollar also looked overvalued given thescale of rate hikes already priced in.
“For the US dollar to become even more overvalued it willlikely require some combination of intensifying global growthconcerns and/or another significant hawkish repricing of Fedrate hike expectations,” he said.
The dollar index, which measures the greenbackagainst six peers, was 0.1% lower at 103.17 but still up thisweek as growth concerns encouraged investors to seek safety inthe U.S. currency.
The euro edged up 0.2% to $1.0631 having touched$1.0611 early in the session, its lowest since May 23. It lost0.92% on the dollar overnight after a volatile ECB-drivensession.
Elsewhere, the dollar gave back a fraction of its recentgains against the Japanese yen, falling 0.3% to 133.94yen, but still in sight of its 20-year high of 134.55 hitThursday.
The Bank of Japan, unlike major peers, has repeatedlycommitted to keeping interest rates low, sending the yen down towithin striking distance of 135.20 hit on Jan. 31, 2002. A breakpast that would be its lowest since October 1998.
The Norwegian crown gained, helped by the Norwegianstatistics office reporting that the country’s economy wasgrowing faster than expected this year and inflationaccelerating. The crown last traded up 0.2% at 10.176 per euro.
The risk sensitive Australian dollar edged up 0.3%to $0.7119 but was still down 1.2% this week, hurt by declinesin equity markets, while sterling slipped fractionallyagainst the dollar to $1.2481.
