Dollar Down, Inflation Data Looms as Next Test on Central Bank Interest Rate Hikes

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Dollar Down, Inflation Data Looms as Next Test on Central Bank Interest Rate Hikes
Credit: © Reuters.

By Gina Lee

Investing.com – The dollar was down on Tuesday morning in Asia, remaining a little below 2021's peaks hit on Tuesday. Cryptocurrencies scaled records, while inflation numbers loom as the next test of traders' thinking on the outlook for interest rates.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.11% to 93.942 by 11:59 PM ET (4:59 AM GMT).

The USD/JPY pair went down 0.35% to 112.82.

The AUD/USD pair edged down 0.13% to 0.7410 and the NZD/USD pair inched down 0.07% to 0.7160. The greenback dropped against the New Zealand dollar overnight as traders stay wary of the possibility that the Reserve Bank of New Zealand (RBNZ) could raise rates by 50 basis points (bps) later in the month.

“If the RBNZ is of a mind to hike by 50bps, now’s the time,” ANZ analysts said in a note.

“That still seems incongruous with the uncertain global backdrop and cautious tone of other central banks. Still, until we know the outcome, markets will price in the risk.”

The USD/CNY pair inched up 0.09% to 6.3960. Inflation data, including consumer and producer price data indexes from both China and the U.S., is due on Wednesday. The data could also test central bankers’ view that inflation is temporary.

The GBP/USD pair inched up 0.05% to 1.3567.

Ahead of the data, a group of central bankers, including European Central Bank President Christine Lagarde and U.S. Federal Reserve Chairman Jerome Powell, will speak on Tuesday.

The Bank of England gave markets a surprise last week when it kept its interest rates unchanged at 0.10%. The Reserve Bank of Australia and the Fed also did not hike interest rates despite aggressive market predictions.

Standard Chartered (OTC: SCBFF ) analysts expect a hike in the third quarter of 2022, but a slow path higher thereafter. "We suspect that the discussion of rate hikes will subside for a while. Central banks that give forward guidance discourage investors from pricing policy moves too far in advance," strategists Steve Englander and John Davies said in a note.

"So we expect Fed officials to keep repeating that rate hikes are not imminent until a move is only a few months away,” the note added.

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