Dollar edges lower at start of key central bank week

The U.S. dollar edged lower in early European hours Monday, but losses are minimal as traders await signals from a string of central bank meetings this week, with the Federal Reserve, in particular, in the spotlight.

At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 100.645, well above a 15-month low hit earlier in July.

Fed future guidance seen key
The dollar gained over 1% last week after data showed the U.S. labor market remained tight, creating some uncertainty over the path the Federal Reserve will guide towards on Wednesday.

The Fed is still widely expected to hike rates by 25 basis points, but whether it will signal more rate hikes this year remains to be seen, given that U.S. inflation, while slowing, is still trending above the bank’s annual target range.

“Price action over the past week probably shows that a switch to the disinflation trade will not be easy and will require a constant drip feed of supporting evidence – be it softer price or weaker activity data,” said analysts at ING, in a note.

Euro edges higher; Lagarde’s comments seen key
EUR/USD rose 0.2% to 1.1141, with Thursday’s European Central Bank meeting set to also result in an increase of 25 basis points.

Again, with such a hike largely priced in, it’s the associated comments from ECB President Christine Lagarde that the market is waiting for, in particular, the signal she sends for the September meeting with eurozone inflation still considerably above the central bank’s target.

Manufacturing and services PMI data for the eurozone are scheduled for release later in the session and should provide clues as to the health of the region’s economy.

Japanese yen rebounds ahead of BOJ meeting
USD/JPY fell 0.3% to 141.39, with the yen recovering to a degree from steep losses last week ahead of Friday’s Bank of Japan policy meeting.

The BOJ has given scant indication that it plans to tighten its ultra-loose policy in the near term and is widely expected to stand pat on interest rates and its yield curve control measures this Friday.

The Japanese Government said on Monday that inflation is likely to moderate further this year, before slowing to around 1.5% next year when stripping away the effect of one-off factors.

Elsewhere, GBP/USD rose 0.2% to 1.2879, helped by last week’s strong retail sales data, AUD/USD rose 0.1% to 0.6739, inching up on the prospect of more stimulus measures in China given the importance of that market to the Australian export market, while USD/CNY rose 0.1% to 7.1943.