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Dollar dips after Fed cools inflation fears

USD - United States Dollar

The US dollar dipped in early trading after US Federal Reserve officials said yesterday that there are no immediate plans to tighten monetary policy. Some investors expected that the surge in inflation could prompt the central bank to hike interest rates sooner than expected. The US Dollar Index moved lower 0.45% to 90.340 against a basket of major currencies this morning.

US retail sales data, one marker of ongoing economic recovery, unexpectedly remained unchanged in April. However, retail sales surged 51.2% on a year-on-year basis. The Commerce Department also revised the number in March to 10.7%, reflecting boosted spending when stimulus checks hit Americans’ pockets that month. Economists expect retail sales to see a quick rebound in the coming months as the economy reopens.

Key Movers

The euro climbed 0.52% to 1.214 this morning on the weaker US dollar. Sterling is also up after coming under pressure following comments from Bank of England Governor Andrew Bailey. Yesterday, Bailey suggested that interest rates would remain low for the foreseeable future, warning that he didn’t think the situation with low interest rates would change markedly. GBPUSD was up 0.31% at 1.409 this morning.

AUDUSD is slightly up this morning at 0.774, recovering modestly from losses suffered after Wednesday’s US CPI print. Investors continue to digest changing inflation expectations, while cooling commodity prices did little to drive gains.

The Canadian dollar was yesterday’s big mover, driven lower by a falling oil price and dovish commentary from the Bank of Canada. BoC governor Tiff Macklem said the central bank is closely monitoring the Canadian dollar’s gains, to make sure further appreciation doesn’t create economic headwinds. CAD weakened following those comments, falling below 0.8250 before creeping higher in early trading this morning.

Expected Ranges

EUR/USD: 1.206 - 1.214 ▲

GBP/USD: 1.402 - 1.410 ▲

AUD/USD: 0.771 - 0.777 ▲

USD/CAD: 1.208 - 1.220 ▼