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Dollar rebounds; Waller punctures Fed easing bubble

Published 11/14/2022, 04:24 PM
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By Peter Nurse

Investing.com - The U.S. dollar bounced in early European trade Monday, recovering to a degree after last week's sharp selloff as comments from Federal Reserve Governor Christopher Waller prompted a reassessment of the central bank's future monetary policy.

At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher at 106.550, climbing from Friday's near three-month low of 106.28.

The index fell 4% last week, its worst week in more than two and a half years.

The release of cooler than expected U.S. CPI inflation for October on Thursday prompted a sharp retreat in the dollar on raised expectations that the Fed will decide to temper its aggressive monetary tightening campaign earlier than previously anticipated, potentially hiking by only 50 basis points in December.

However, Waller attempted to puncture this optimism, saying in an interview over the weekend that the markets shouldn't get carried away over just one "data point."

He added the Fed may consider slowing the pace of rate increases at its next meeting but that should not be seen as a "softening" of its battle against inflation.

"We can now expect a period of elevated market sensitivity to Fed-speak, as investors will attempt to gauge which members have been convinced to press the breaks on tightening from the latest inflation figures," analysts at ING said, in a note.

"We think it's premature for a sustained dollar downtrend, as a Fed pivot is not a given yet and risk assets continue to face a variety of headwinds."

EUR/USD fell 0.2% to 1.0332, the risk-sensitive AUD/USD traded flat at 0.6702, and GBP/USD fell 0.4% to 1.1787, handing back some of the strong gains seen last week.

Sterling traders will be paying special attention to the Autumn Statement on Thursday, with British finance minister Jeremy Hunt expected to set out hefty tax rises and spending cuts to help tackle a significant hole in the public finances.

USD/JPY rose 0.5% to 139.44, with the pair remaining below the key psychological level of 140, having earlier fallen below the level for the first time in two months as U.S. Treasury yields retreated in the wake of the latest U.S. inflation data.

USD/CNY fell 0.9% to 7.0428, with the yuan climbing to its strongest level in nearly two months amid growing optimism over the scaling back of some strict anti-COVID measures.

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