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Dollar steadies as traders look to cenbanks for guidance -Breaking


© Reuters. FILEPHOTO: This illustration shows an American dollar banknote taken May 26, 2020. REUTERS/Dado Ruvic

Tom Westbrook

SINGAPORE, (Reuters) – The dollar bounced back from recent lows on Tuesday and was stable in choppy trading ahead of a few data releases and central banks meetings that investors believe will guide rates outlook.

Overnight, the euro dropped 0.3% due to a softening of German business sentiment and expectation that the European Central Bank will remain dovish at its meeting on Thursday.

Last week, $1.1598 was the price at which the euro traded. This is close to a one-week high.

Other overnight moves were moderate, with sterling and dollar both easing slightly. On Tuesday it was fairly steady, except for the slight rise in Japan’s yen at 113.83 yen. There was also a dip in the Aussie.

It was 93.856.

Analysts from Westpac wrote that “The Dollar looks to be getting its feet in mid-93s,” as they focus on the ECB’s meeting, and U.S. data due Wednesday.

This week’s focus will be on the ECB as well as U.S. Q3 GDP. They said that the ECB will likely emphasize dovish guidance and US GDP would show the rebound stalling but price pressures continuing building.” This set the stage for the Federal Reserve to announce a decrease in bond purchases by next week.

All things considered, it is best to keep the short-term yield spreads in favor of the dollar and give the dollar a bid tone over the coming weeks.

This week’s agenda includes central bank meetings in Japan, Canada and Australia. Also this week is quarterly inflation data for Australia. Rate markets in Australia are not happy with the cautiously optimistic Reserve Bank of Australia (RBA) regarding the outlook.

After climbing as high as $.07546 last Wednesday, the Australian dollar saw a slight increase to $0.7503, its highest level since July. The kiwi remained at $0.7165.

According to economists, Australia’s trimmed median consumer prices will see an increase of 1.8% annually in September from the 1.6% recorded in the three previous months.

Canada’s high inflation rate has forced the central bank into raising rates. Traders will be watching for any indications of possible hawkish moves at Wednesday’s meeting.

Canadian Dollar at C$1.2383/dollar, after hitting a 4-month high last week. Meanwhile, the gap between Canadian 2 year yields and U.S 2-year yields has more than doubled to 41 basis point in favor of the Canadian bond.

Kit Juckes, Societe Generale strategist (OTC) stated that any hawkish undertones could make me excited about the return to 1.20.

The Bank of Japan meets on Wednesday and Thursday. Sources have confirmed to Reuters that they are discussing the elimination of the COVID-19 loan program. But, a decision by December would be unlikely. No policy changes will take place this week.

The Fed, RBA, and Bank of England are scheduled to meet Friday. Markets had priced in roughly 60% of the possibility that the Bank of England would raise interest rates. This is because they want to curb inflation.

Sterling is gaining strength in anticipation of rising rates, and last stood steady at $1.3758.

Brian Martin, Senior International Economist at ANZ Bank said that “Small open countries are prone to importing rises in prices which could enter into the inflation equation earlier.”

“In this context, monetary tightening can be justified. This is the case of the UK, and the Bank of England appears poised to soon join the rate-tightening early. “We have pushed forward to the quarter the date when the BoE will begin rate normalization.”