Dollar hits two-week high as Fed tapering expectations grow

The dollar index rose 0.3% to 92.880 in early European trading hours, its highest level since August 27. It was last up 0.2%. A flurry of U.S. economic data is due out this week, starting with U.S. consumer price data on Tuesday, which will frame the economy’s progress ahead of the Federal Reserve’s meeting next week.

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The dollar stengthened to a two-week high versus a basket of major currencies on Monday as market expectation builds that the Federal Reserve could taper its stimulus sooner rather than later despite a surge in COVID-19 cases.

The dollar index rose 0.3% to 92.880 in early European trading hours, its highest level since August 27. It was last up 0.2%.

A flurry of U.S. economic data is due out this week, starting with U.S. consumer price data on Tuesday, which will frame the economy’s progress ahead of the Federal Reserve’s meeting next week.

The Philadelphia Fed President Patrick Harker became the latest offical to say he wants the central bank to start tapering this year, saying in a Nikkei interview that he was keen to scale back asset purchases.

“The U.S. dollar’s recent rebound has coincided with more hawkish comments from Fed Presidents,” FX analysts at MUFG said in a note.

The Wall Street Journal reported on Friday that Fed officials will seek to make an agreement to begin paring bond purchases in November.

Further U.S. data this week should help set the tone ahead of the meeting, with retail sales and productions figures also slated for later this week.

The euro was among the currencies to lose ground to the dollar, dipping 0.3% to $1.17750, its lowest level in a little over two weeks, after the European Central Bank said last week it would start to trim its own emergency bond purchases.

The yen also fell back around 0.2% and was last at 110.090.

“A couple of dynamics favour the dollar,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

“Re-opening still faces challenges from the consumer, who is cautious and from bottlenecks which restrict ability for the economy to rebound with some gusto.

“At the same time rising infections suggest we may still need to reintroduce restrictions of some sort. The other thing is that the Fed continues to signal that tapering is coming.”

In addition, Gold prices nudged up on Monday drawing some support from weaker U.S. bond yields but a resurgent dollar kept the metal on a tight leash as investors awaited U.S. inflation readings later this week.

Spot gold rose 0.1% to $1,788.51 per ounce, while U.S. gold futures fell 0.1% to $1,790.00.

Benchmark 10-year U.S treasury yields eased, lowering the opportunity cost for holding non-interest bearing bullion.

Investors are now eying U.S. consumer price data due on Tuesday which could have a bearing on the timeline the Federal Reserve adopts to withdraw its economic support.

The data comes on the heels of comments from several Fed officials that the central bank should begin tapering asset purchases this year.

“Price pressure for gold is still on the rise, but with growth not strong enough to really support a strong amount of tapering, let alone a rate hike in the U.S., the outlook is still positive once we get some momentum back,” Saxo Bank analyst Ole Hansen said.

Bullion has struggled to breakout above its roughly $1,780 to $1,800 range after retreating from about $1,830 hit last week.

IG Market analyst Kyle Rodda said gold was likely to trade between $,1760 and $1,830 in the medium-term, reflecting indecision about the ongoing impact of the coronavirus, economic growth, inflation expectations and monetary policy.

The dollar index hit a more than two-week high, denting gold’s appeal by raising its cost for holders of the metal in other currencies.

Platinum eased 0.7%, to $949.01 after touching its lowest since November 2020.

“Demand for platinum from the auto-industry is slowing even though we’re seeing some signs of demand switching from palladium to platinum on a relative basis, challenging both investment and physical demand,” Saxo’s Hansen said.

Palladium rose 0.4% to $2,148.18, after falling to a trough since August 2020.

Silver dipped 0.3% to $23.64.

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