NEW YORK: The dollar dipped on Monday after hitting 15-month highs on Friday following strong US jobs data, as investors digested the report and the Federal Reserve’s plans to start reducing its bond purchases this month.
On Wednesday the Fed stuck to its view that current high inflation is expected to be transitory and said it would start trimming its massive bond-buying program this month, but wait for more job growth before raising interest rates.
Then on Friday, US data showed employment increased more than expected in October as the headwind from the surge in COVID-19 infections over the summer subsided, showing economic activity regaining momentum early in the fourth quarter.
At 0953 EST (1453 GMT), the dollar index was down 0.07% on the day at 94.147, taking a breather after Friday’s rally.
“Markets are digesting the information that we received last week, both from the Fed statement and also from the non-farm (payrolls) report on Friday, which still point to the fact that the Fed is removing liquidity and expected to hike rates later next year,” said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.
Rai also pointed to comments from Fed Vice Chair Richard Clarida, who said on Monday that the Fed could clear its benchmarks for raising interest rates next year with jobs restored to where they were before the pandemic and inflation already pushing beyond comfortable levels.
“His line of thinking is pretty similar to what we heard from (Fed Chair Jerome) Powell last week, in the sense that there seems to be a little more risk to inflation to the upside,” said Rai.
The next test of the Fed’s wait-and-see approach to inflation will be US CPI data due on Wednesday.
Commodity Futures Trading Commission data showed speculators scaled back their net long position on the dollar for the fourth week running in the week to Nov. 2.
The Australian dollar, which is seen as a proxy for risk appetite, was up 0.26% on the day.
The New Zealand dollar was 0.76% higher after Prime Minister Jacinda Arden announced that lockdown measures will likely be phased out by the end of the month.
The euro was a touch higher, up 0.04% at $1.1571.
Euro zone inflation will ease next year and remains too weak in the medium term, European Central Bank chief economist Philip Lane told a Spanish newspaper, repeating the bank’s long-standing message that high price growth is temporary.
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