U.S. Dollar Under Pressure Ahead of Fed Meeting
With the U.S. Federal Reserve policy meeting in focus, September has been a difficult month for the dollar. Mixed signals from Fed policymakers and mixed economic data created volatility, but gains were seen on Friday after the release of positive inflation data.
The pound was down 0.65% against the dollar, trading at 1.3154. The greenback was steady against the yen, and gained on the Aussie, with AUD/USD at 0.7496. The New Zealand dollar was trading down 0.3% against its U.S. counterpart at 0.7293.
Still, analysts say the gains will be limited as the market braces for the Federal Reserve’s policy meeting next week.
The Commerce Department reported that the consumer price index climbed 0.2% last month, beating expectations of a 0.1% gain. Inflation was flat in July.
photo/ TaxRebate.org.uk
Consumer prices are up 1.1% year-over-year, which also surpassed expectations of a 1% gain.
Core CPI, excluding energy and food, was up by 0.3% in August, beating projections of a 0.2% increase. Core CPI was up by 0.1% in July.
The report pushed the dollar higher, but the currency took a hit mid-week, and a downbeat retail report on Thursday left the greenback flat.
The dollar’s direction is being primarily driven by the Fed policy meeting this month. Comments from policymakers indicated that the decision on whether to raise rates would be dependent on data.
Downbeat data subsequently put pressure on the greenback, while positive data lifted the currency. Meanwhile, Fed officials appeared to be in disagreement as to whether it’s time to raise rates. Some officials called for a rate hike sooner rather than later, while others, like Fed Governor Lael Brainard, called for caution.
Brainard stated in a speech on Monday that taking a cautious approach has helped “support continued gains in employment and progress in inflation.”
After her remarks, the final comments before the Fed blackout period, market players overwhelmingly placed their bets against a rate hike in September. The dollar fell as a result, as lower prospects of a rate hike make the currency less attractive to yield-seeking investors.
Mixed signals and mixed data has caused the dollar to fluctuate greatly over the month of September.
With no clear direction, many would-be market players are sitting on the sidelines.
“Today’s CPI data is of extreme importance given the FED`s mandate to maintain inflation at or close to 2% through the use of various monetary policy tools,” says Opteck, a binary options trading platform.
But the mixed bag of data from earlier in the month still leaves uncertainty as to whether the Fed will raise rates.
The dollar isn’t the only currency that has had a difficult month. The euro has fluctuated on mixed data, the first solid sets of data after Brexit. The yen has been going back and forth amid expectations that the Bank of Japan would implement further easing.
A string of central bank meetings has made the month a questionable time to play the forex market. Many market participants are waiting for a clear trend to emerge before diving back in. But with the Fed and BoJ meetings scheduled for next week, that trend may not become apparent until October.
Author: Jacob Maslow
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