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LONDON: The dollar was set for a fourth consecutive month of losses on Monday after a policy change from the US Federal Reserve on inflation, while the euro was set to post a fourth month of gains, leading both currencies at levels last seen in 2018.
Investors are adjusting to a speech last Thursday in which Federal Reserve Chairman Jerome Powell outlined an accommodative policy shift that is believed could cause inflation to move slightly higher and interest rates stay low longer.
“Even if US central bankers are likely to be pleased with the interpretation of their measures, it is not good news for the dollar,” commerzbank analysts commented.
“If the domestic purchasing power of the dollar is expected to erode more rapidly (since that is inflation) it is difficult to assume that it will maintain its purchasing power in the foreign exchange market in the long term,” they argued.
“That’s why the EUR-USD is trading above 1.19, while the dollar index (DXY) is trading below 92.50,” they concluded.
Against a basket of currencies, the dollar was up 0.1% to 92.356 in early trading in Europe and is down 1.2% on the month.
If held up, that would be the worst August in five years and would represent the longest monthly losing streak since the summer of 2017.
The euro was stable at $ 1.1903 and on track for a 1% monthly gain, which would be its fourth consecutive month of increases.
With most London traders on bank holidays, the focus is now on a handful of Federal Reserve officials speaking during the week, starting with Richard Clarida at 1300 GMT on Monday, as they put more meat on the market. new bank policy framework.
Eurozone inflation data on Tuesday and US payrolls on Friday will also be closely watched.
Previously, the yen stabilized on the view that Japan’s next leader will stay the course of the ‘Abenomics’ economic revival program.
The yen fell about 0.4% in Asia to 105.77 per dollar, having risen to 104.195 on Friday following the resignation of Shinzo Abe as prime minister for health reasons.
Elsewhere, trading was choppy as momentum to Asian currencies due to strong expansion in China’s service sector had started to slow somewhat.
The Australian dollar was down 0.2% after hitting a 21-month high of $ 0.7381, but was still poised for a fifth consecutive monthly rise, its best streak in more than a decade and a 34% gain since March minimum.
The New Zealand dollar reached a post-COVID high of $ 0.6749, but it also fell slightly 0.2% thereafter.
The Chinese yuan hit a 14-month high of 6.844 to the dollar in foreign trade as investors applaud growth in services rather than worry about a stalled rebound in manufacturing.
It subsequently dropped some gains and last stood at 6.8556. – Reuters
Bloomberg screen showing the performance of the US dollar against the currency’s backet since January 1, 2020.
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