Tom Westbrook

SINGAPORE, (Reuters) – The dollar stabilized Monday following its sharpest weekly drop in over a month. Traders weigh inflation’s effect on rate rises relative to each other. They also keep an eye on U.S. data on growth and a meeting of the European Central Bank.

After Federal Reserve Chair Jerome Powell stated Friday that it was now time for asset sales to be cut, but not to raise interest rates, the greenback has weakened, particularly against the Japanese yen.

He made these remarks as investors had already begun to cut long dollar positions due to the possibility of Fed rate rises in the second half next year.

After Friday’s fall, Monday saw the dollar remain firm at $1.1643/euro and gain ground on the yen at 112.34. New Zealand and Australian dollars held steady below their multi-month highs last week. [AUD/]

As traders battled to get higher rates, while inflation was high, the Antipodeans and sterling had edged ahead. With markets anticipating an almost 60% chance of a Bank of England rate hike next week, it is now possible for them both to be ahead.

The Sterling gained 0.1% to $1.3772. However, analysts are cautious about future gains as the Fed moves closer towards tapering and tightening policy. Both the steady $0.7473 and stable $0.7157 were both reported.

Kim Mundy from the Commonwealth Bank of Australia, an analyst in currency at OTC: Sydney said “Dollar Risks remain skewed toward the upside.”

“(Fed Members) are gradually admitting that inflation risk is skewed toward the upside (and) that interest rate markets could continue to price an aggressive Fed Funds Rate hike cycle, which can support dollar.”

The Australian Inflation Data due Wednesday will set the stage for the next phase in the tussle between central banks and traders.

U.S. growth data will show that the growth rate has declined due to lower consumer confidence. But, a surprise from either side could impact the outlook for the interest rates.

On Thursday, the Bank of Japan as well the European Central Bank will meet. However, neither bank is expected to alter policy. In Europe however market gauges of anticipated inflation are in contradiction with the bank’s guidance.

Trader’s remain concerned about the looming trouble at China Evergrande Group, an indebted developer. Investors were surprised when it avoided default last week with a last minute coupon payment, but there are still other urgent debts.

Offshore trade remained at just 6.3804 dollars per dollar, just short of its five-month high. While cryptocurrencies held steady at or below last week’s peak, bitcoin was up by 2% at $62,000.

Emerging markets saw the Turkish lira being sold to the extent that the central bank had unexpectedly cut the rate.

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Exchange bid prices starting at 0110 GMT

Description U.S. Close RIC Pct Change Pct High Low Bid

Previous changes

Session

Euro/Dollar

$1.1645 $1.1646 $0.01% –4.69% +1.1649+1.1626

Dollar/Yen

113.7350 113.4900 +0.18% +0.07% +113.7400+113.5750

Euro/Yen

132.45.17 +0.21%+4.35% =132.4500 +132.1200

Dollar/Swiss

0.9163 0.9162 +0.00% -3.56% +0.9169 +0.9157

Sterling/Dollar

1.3771 1.3756 +0.13% @0.81% +1.3775+1.3752

Dollar/Canadian

1.2362 1.2368. 0.03%. 2.90%. +1.2379. +1.2358

Aussie/Dollar

0.7478 = 0.7470 +0.11%-2.79% (+0.7478 +0.7465

NZ

Dollar/Dollar 0.7161 0.7150 +0.15% -0.29% +0.7162 +0.7148

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