Dollar rangebound as markets eye U.S. debt ceiling talks, inflation data

The dollar clung to modest gains against major currencies on Tuesday but remained rangebound as traders awaited U.S. debt ceiling talks and tried to digest how a host of conflicting economic data will influence monetary policy and global growth.

Chinese imports contracted sharply in April from a year earlier while exports grew more slowly than in March, which had a limited impact on currencies, but contributed to risk-off moves broadly across markets.

“Overnight, you get the China data … which is undermining this ever-emerging narrative about the China rebound,” said Alvise Marino, macro trading strategist at Credit Suisse (SIX:CSGN) in New York. “The uncertainty about the growth outlook is still very much an important part of the picture.”

Closely-watched U.S. inflation data due on Wednesday is likely to set the tone for markets, after stronger-than-expected jobs data last week.

“The conversation about sticky inflation is very much prevalent in the market. The fact that the Fed may not be cutting interest rates this year, that is in line with our view,” said Jane Foley, head of FX strategy at Rabobank in London. “That conversation brings us right up to that CPI data, and if the Fed is going to be data-dependent, well, this is going to be an important release. The market is watching the data.”

Any Federal Reserve policy tweaks will have to be weighed against a backdrop of recent turmoil in the U.S. banking sector and a political impasse in Washington over lifting the country’s debt ceiling and avoiding a default, analysts said.

The Fed’s quarterly survey of bank loan officers released on Monday showed that credit conditions for U.S. businesses and households continued to tighten at the start of the year, most likely due to interest rate hikes.

The closely watched survey was among the first measures of sentiment in the banking sector since the recent run of bank failures, sparked by Silicon Valley Bank’s collapse in March.

Against a basket of currencies, the U.S. dollar index edged up 0.25% to 101.68, but remained near recent lows as traders eye a peak in U.S. rates.

The euro dipped 0.41% to $1.0958.

Sterling was broadly flat and bought $1.2599, ahead of Thursday’s central bank policy meeting.

The Bank of England looks set to raise interest rates to 4.5%, as it tries to fight the highest inflation rate in Western Europe.

The Japanese yen was last seen trading at 135.075 per dollar, with Bank of Japan (BOJ) Governor Kazuo Ueda signalling that the central bank may end its yield curve control policy and start shrinking its balance sheet.

Currency bid prices at 10:18AM (1418 GMT)

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

Previous Change

Session

Dollar index 101.6800 101.4400 +0.25% -1.749% +101.8400 +101.3500

Euro/Dollar $1.0958 $1.1005 -0.42% +2.27% +$1.1003 +$1.0941

Dollar/Yen 135.0700 135.1450 -0.03% +3.04% +135.3450 +134.7250

Euro/Yen 148.02 148.69 -0.45% +5.50% +148.6900 +147.9000

Dollar/Swiss 0.8923 0.8897 +0.29% -3.50% +0.8943 +0.8890

Sterling/Dollar $1.2600 $1.2618 -0.11% +4.22% +$1.2639 +$1.2580

Dollar/Canadian 1.3397 1.3373 +0.18% -1.12% +1.3405 +1.3367

Aussie/Dollar $0.6756 $0.6781 -0.35% -0.87% +$0.6787 +$0.6747

Euro/Swiss 0.9776 0.9787 -0.11% -1.20% +0.9800 +0.9774

Euro/Sterling 0.8695 0.8719 -0.28% -1.68% +0.8725 +0.8692

NZ $0.6325 $0.6345 -0.28% -0.35% +$0.6349 +$0.6320

Dollar/Dollar

Dollar/Norway 10.5650 10.5050 +0.60% +7.68% +10.5840 +10.5200

Euro/Norway 11.5736 11.5493 +0.21% +10.29% +11.6028 +11.5483

Dollar/Sweden 10.2068 10.1571 -0.02% -1.93% +10.2147 +10.1520

Euro/Sweden 11.1808 11.1828 -0.02% +0.28% +11.1961 +11.1622