Dollar Drifts Lower Ahead of Plethora of Fed Speakers

The dollar edged lower in early European trade Monday in thin trading with Japan on holiday and with investors cautious ahead of a number of U.S. Federal Reserve speakers this week.

At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 92.862, the EUR/USD rose 0.2% at 1.1860, GBP/USD up 0.4% at 1.2961, while USD/JPY was down 0.2% at 104.34.

The U.S. Federal Reserve’s stated policy of keeping interest rates at near zero levels for a prolonged period remains a drag on the dollar, but close attention will be paid to remarks from committee members this week for any more clues on the new approach to inflation.

Fed Chairman Jerome Powell is due to appear before Congressional committees later this week, while Fed committee members Lael Brainard, Charles Evans, Raphael Bostic, James Bullard, Mary Daly and John Williams (NYSE:WMB) also make public speeches.

“Inflation will be allowed to overshoot but we still don’t know by how much and for how long,” said Nordea’s Andreas Steno Larsen, in a research note. “We have interpreted it as a de facto 2.4% target as PCE prices have averaged around 1.6% over the past 5-10 years, but we are essentially still kept in the dark by the Fed.”

Aside from these Fed speakers, the U.S. data calendar is quite light this week, but August existing home sales could well be strong given record low mortgage rates.

Also of interest this week will be whether FTSE Russell, a leading global provider of stock market indices, includes China in its World Government Bond Index on Thursday, a move that would likely trigger even more inflows into the country and support the yuan.

“The assets under management tracking this index is big … so we are seeing some pre-positioning taking place,” said Bank of Singapore currency analyst Moh Siong Sim, in a Reuters report.

“But it’s not just the index, the bigger picture here is that the (Chinese) economy is doing well, there’s an interest-rate differential that is supporting the currency and a Biden victory (at the U.S. election) might provide further relief.”

USD/CNY dropped 0.1% to 6.7583, hovering just above a 16-month low it hit last week. The yuan has gained more than 4% since the end of June.

Elsewhere, the Turkish lira remained under pressure at 7.5723 to the dollar, close to the all-time low it hit last week.