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Dollar rebounds as Brainard assures markets Fed will stay the course

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WASHINGTON, April 12 (Reuters) - The dollar rebounded on Tuesday after digesting slightly softer-than-expected U.S. inflation data, while the euro extended losses ahead of a policy-setting meeting at the European Central Bank.

Federal Reserve Governor Lael Brainard said on Tuesday that there were some signs of “welcome” cooling in the latest inflation readout, but emphasized that the central bank is still proceeding with a series of interest rate hikes, as well as an effort to trim its balance sheet.

"I'll be looking to see whether we continue to see moderation in the months ahead," Brainard told the Wall Street Journal in an interview, referring to inflation in the "core" goods category. read more

The U.S. Consumer Price Index showed that prices rose 8.5% in March compared with a year ago, boosted by the soaring cost of gasoline but tempered by a moderation in prices of used cars and trucks. The core CPI fell short of estimates, landing at 6.5%.

Brainard’s comments highlighted that the Fed “is not pivoting at this point,” providing an assurance for the greenback after a morning of choppy trading, said Bipan Rai, head of FX strategy at CIBC Capital Markets in Toronto.

“The path of least resistance is still for tighter policy, and also for an aggressive unwind of the balance sheet, and as a result of that, I think the dollar is stabilizing a little bit,” he said.

The dollar index rose 0.27%, with the euro down 0.54% to $1.0824.

Benchmark 10-year U.S. Treasury yields recovered to 2.7194%, after reaching 2.793% on Monday, the highest since January 2019.

The inflation numbers initially suggested the Fed might not need to be as aggressive in the second half of this year as some had originally expected, said Edward Moya, senior market analyst at OANDA.

“While this doesn't change anything that the Fed will do over the next couple of meetings, it does support the idea that maybe they won't have to be as aggressive with tightening policy later on in the year, and that's why we saw the dollar drop somewhat following the initial reaction,” said Moya.

The euro declined Tuesday as markets shifted their attention to the ECB policy meeting due later this week, with money markets pricing in about 70 basis points of interest rate tightening by December.

“The big focus for the ECB this week is whether or not the timeline to remove accommodative policy settings has shrunk, given the fact that the chorus of voices on the governing council have become more hawkish,” said Rai.

Investors will likely look for any indication that the ECB will wind down its asset purchase program, which could tee up a rate hike in September, Rai said.

Still, any rebounds in the euro will likely be limited due to the Russian war against Ukraine, said Moya. In addition to pushing up gasoline prices, the war, now in its second month, has led to a global surge in food prices as Russia and Ukraine are major exporters of commodities including wheat and sunflower oil. read more

“There's just this overall belief that until you have a resolution with the war in Ukraine, their economic outlook is really going to be a big question mark, and that's not necessarily going to be good for flows for the euro,” said Moya.

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Currency bid prices at 2:28PM (1828 GMT)

Description
RIC
Last
U.S. Close Previous Session
Pct Change
YTD Pct Change
High Bid
Low Bid
Dollar index
100.3000
100.0400
+0.27%
4.847%
+100.3300
+99.7340
Euro/Dollar
$1.0826
$1.0884
-0.54%
-4.79%
+$1.0905
+$1.0821
Dollar/Yen
125.2850
125.3800
-0.07%
+8.84%
+125.7500
+124.7600
Euro/Yen
135.62
136.43
-0.59%
+4.07%
+136.6400
+135.5500
Dollar/Swiss
0.9323
0.9312
+0.12%
+2.21%
+0.9344
+0.9288
Sterling/Dollar
$1.3001
$1.3029
-0.20%
-3.85%
+$1.3054
+$1.2994
Dollar/Canadian
1.2636
1.2634
+0.00%
-0.08%
+1.2661
+1.2583
Aussie/Dollar
$0.7460
$0.7420
+0.57%
+2.65%
+$0.7493
+$0.7400
Euro/Swiss
1.0090
1.0134
-0.43%
-2.69%
+1.0155
+1.0090
Euro/Sterling
0.8324
0.8352
-0.34%
-0.90%
+0.8360
+0.8320
NZ Dollar/Dollar
$0.6858
$0.6825
+0.50%
+0.21%
+$0.6889
+$0.6808
Dollar/Norway
8.7785
8.8095
-0.37%
-0.37%
+8.8340
+8.7370
Euro/Norway
9.5087
9.5958
-0.91%
-5.04%
+9.6023
+9.4864
Dollar/Sweden
9.5228
9.4996
-0.25%
+5.60%
+9.5389
+9.4513
Euro/Sweden
10.3112
10.3375
-0.25%
+0.75%
+10.3562
+10.2890
Reporting by Hannah Lang in Washington; Editing by Leslie Adler
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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