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Dollar Slips, Handing Back Some Tapering Gains

Forex16 minutes ago (May 20, 2021 02:56AM ET)

(C) Reuters.

By Peter Nurse – The dollar edged lower in early European trade Thursday, handing back some of the gains seen after the minutes from the Federal Reserve’s latest policy meeting revealed talk of bond tapering.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 90.085, after it had bounced off three-month lows on Thursday.

EUR/USD traded 0.1% higher at 1.2188, having slipped 0.4% in the previous session from a three-month high of 1.2245, USD/JPY was 0.1% lower at 109.12, GBP/USD rose 0.1% to 1.4120, after trading above 1.42 earlier this week, while the risk-sensitive AUD/USD was up 0.3% at 0.7750.

“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchase,” the minutes showed.

This caused something of a surprise, to the benefit of the dollar, as Fed Chair Jerome Powell had said right after that meeting last month that it is not time yet to begin discussing any change in policy.

However, the gains were minor, as central bank members continued to point out that there is still a long way to go until the economy makes “sustained progress” toward the Fed’s maximum employment and inflation goals.

The minutes lifted U.S. bond yields a little, with the 10-year Treasury yield now around 1.67%, compared with 1.65% just before the release of the minutes, but this is still well below their March peaks.

Elsewhere, USD/ZAR is down 0.2% at 14.0812 ahead of the latest meeting of South Africa’s central bank. The bank is likely to leave its interest rates unchanged later Thursday, but expectations are rising that it will be forced to tighten its policies this year after inflation accelerated more than expected.

Data released Wednesday showed inflation accelerated to a 14-month high of 4.4% in April from 3.2% the previous month. With the central bank’s key interest rate at 3.5%, the country now has a negative real interest rate for the first time since February 2016.

Dollar Slips, Handing Back Some Tapering Gains

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