Dollar sits at near two-week low; US inflation test looms
By Ankur Banerjee and Alun John
SINGAPORE/LONDON (Reuters) — The dollar meandered near a two-week low on Thursday ahead of U.S. inflation data that will help shape the Federal Reserve's next policy steps, a day after the release of minutes from the Fed's last meeting showed policymakers taking a cautious stance.
The dollar index, which measures the U.S. currency against six rivals, was at 105.69, broadly flat on the day, but not far from 105.53, its lowest since Sept. 25 touched earlier in the day.
The euro and yen were both steady against the dollar, at $1.0621 for the European common currency and 149.13 per dollar for the yen, with major moves capped by the looming inflation figures.
September's U.S. consumer price index data, which is expected to show inflation moderated last month, is due at 1230 GMT.
A downside surprise to inflation will likely support the case for the Fed having finished its tightening cycle, which would pull down U.S. Treasury yields and the dollar, according to Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).
«On the flip side, an upside surprise will likely encourage markets to reprice higher the chance the (rate setting) Federal Open Market Committee will follow through on its projected 25 basis point hike.»
Futures markets are pricing in a 26% chance of a 25 basis point (bps) increase by the Fed's December meeting though just a 9% chance of a 25 bps rise at the central bank's next meeting in November, according to the CME FedWatch tool.
The dollar's recent weakness has been driven by declining Treasury yields as bond prices rallied on the Fed's softer stance on future rate rises. Bond yields move opposite to their price. The yield on 10-year Treasury notes
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