Euro/dollar treads water as traders await clues on rate direction

The euro held steady against the dollar on Tuesday and most currency pairs were little changed as traders waited for U.S. inflation data later in the week and more clues from central bank governors over the direction of interest rates.

After central banks sought to push back against rising rate hike expectations last week, sending the euro and the pound tumbling, currency markets have settled back into another spell of low volatility.

The euro stood at $1.1581, unchanged on the day, and the dollar index at 94.030 , also little moved.

Adam Cole, currency analyst at RBC Capital Markets, remains constructive on the dollar. That is based on a “purely vanilla nominal rates story” predicated on his prediction that the divergence in rate expectations with the U.S. would soon shrink, supporting the dollar.

“We will get better direction when we get to the U.S. CPI,” he said, referring to data due out on Wednesday.

The data is expected to show U.S. consumer prices galloped and Chinese factory gate prices soared in October.

Ahead of the inflation data, a slew of central bankers is due to speak later on Tuesday, including European Central Bank President Christine Lagarde at 1300 GMT and Fed chair Jerome Powell at 1400 GMT.

Standard Chartered (LON:STAN) strategists Steve Englander and John Davies said in a research note this week that they were now expecting one rate hike from the Fed in 2022, down from a previous expectation of no hikes. But they are not changing their dollar forecasts with current market pricing for future rate rises “too aggressive”.

Elsewhere, the yen rose to a one-month high of 112.73 versus the dollar after hitting a four-year low last month. The yen was last at 112.95 per dollar, leaving the greenback down 0.2% on the day.

Sterling, hammered last week in the wake of the Bank of England’s surprise decision to keep rates on hold, edged up 0.1% to $1.3577, having recovered from the $1.3425 low hit on Friday.

The New Zealand dollar dipped 0.1% to $0.7163 after jumping on Monday. It has been drawing support from traders wary of the possibility that the Reserve Bank of New Zealand could raise rates by as much as 50 basis points (bps) later this month.

The risk-sensitive Australian dollar dropped 0.2% to trade at $0.7407.

Bitcoin rose to a record $68,564, pulling ether with it to a record $4,800 in Asian trading hours, before pulling back to $67,615.