By Tom Westbrook
SINGAPORE (Reuters) – The dollar slipped on Monday, as traders weighed the prospect of inflation hastening the pace of rate hikes outside the United States, with a wary eye on commodity prices, U.S. growth data and central bank meetings ahead in Europe, Japan and Canada.
The dip pulled the dollar index to a one-month low and extends softness after Federal Reserve Chair Jerome Powell said on Friday it not yet time to begin raising interest rates.
The greenback fell about 0.2% against the Australian and New Zealand dollars and about 0.1% to $1.1659 per euro. The dollar index edged down as far as 0.2% to 93.483. The yen, which leapt on Friday, eased slightly to 113.63 per dollar.
Powell’s remarks came as investors have priced in Fed rate hikes starting in the second half of next year and yet have begun to trim long dollar positions in anticipation that other central banks could get moving even sooner.
The Antipodeans, along with sterling, have bounded ahead this month as traders scrambled to price in higher rates while inflation runs hot, with markets now eyeing a near 60% chance of a Bank of England hike next week.
The Aussie was last at $0.7482 after rising above $0.75 for the first time since July last week and the kiwi bought $0.7161 after trading as high as $0.7219 last week.
“Dollar risks remain skewed to the upside,” said Kim Mundy, a currency analyst at the Commonwealth Bank of Australia (OTC:CMWAY) in Sydney.
“(Fed) members are slowly conceding that inflation risks are skewed to the upside (and) the upshot is that interest rate markets can continue to price a more aggressive Fed Funds rate hike cycle which can support the dollar.”
This week, Australian inflation data due on Wednesday is likely to set the tone for the next stage in a tussle between traders and a resolutely dovish central bank.
Soaring housing costs and rising food and fuel prices have tapering in the frame when Canada’s central bank meets on Wednesday. Oil hit a fresh three-year high on Monday and the Canadian dollar rose 0.2% to C$1.2345 per dollar.
In the United States, Thursday’s gross domestic product figures show an expected slowdown could take some pressure from the Fed, even while inflation runs quite hot.
Neither the Bank of Japan nor the European Central Bank are expected to adjust policy when they meet on Thursday, but in Europe market gauges of projected inflation are increasingly at odds with the bank’s guidance.
“President (Christine) Lagarde seems likely to push back on market agitation over an early rate rise,” said Westpac strategist Sean Callow.
“Supporting her stance, this week’s October Eurozone CPI data is expected to show inflation comfortably close to target at 1.9% (year-on-year),” he said.
In the background, traders have an eye on trouble at indebted developer China Evergrande Group, which surprised investors by averting default with a last-minute coupon payment last week.
China’s yuan held just shy of a five-month peak at 6.3825 per dollar. Cryptocurrencies were steady below the heights reached last week, with bitcoin up 2% at $62,000.
The Turkish lira fell to a new record low in the wake of a surprise rate cut last week and after President Tayyip Erdogan ordered the expulsion of Western diplomats who had called for the release of an imprisoned philanthropist.