The dollar has been showcasing solid performance against Euro. On Wednesday, the U.S. dollar succeeded in holding a three-month high against its major rivals. It was a brief sigh of relief for traders just before Jerome Powell, the Chair of the Federal Reserve of the United States, commented about the soaring inflation problem of the country.
The markets are trying to look for clues to identify when the central bank may consider narrowing down the stimulus. There is also serious concern regarding whether the central bank continues with the oft-reiterated view that the rising inflation rate is transitory.
Earlier, the dollar had risen to as high as 92.832, which was just below the 92.844 level that was attained in the previous week. But the dollar index moved 0.1 % lower to 92.67. According to the MUFG strategists, as per market consensus, Powell would likely try to balance the change by adopting a cautious approach while moving forward with QE tapping. The strategists have justified the cautious tone in Powell by stressing the rise in infections due to the Delta variant in the nation and in different parts across the globe.
The only currency that could successfully hold its own was the New Zealand dollar. Kiwi dollar was able to adapt to the market setting as its central bank had made the announcement to halt the pandemic-related bond purchases. This decision had paved the way for a hike in the interest rate by the end of the year.
Impact of inflation on U.S. dollar
The U.S. dollar marginally retreated from the three-month high against the Euro after the soaring inflation reports were made. It has been reported that inflation in the U.S. had scaled 13-years high in the month of June. Various variables were responsible for the surge in the level of inflation, such as the supply chain constraints and high costs relating to traveling.
The U.S. dollar was able to strengthen its position to $ 1.7720 against the Euro. It was the highest value since April 5. However, the value of the U.S. dollar again slipped 0.2 % to 1.1795. At present, attention has been shifted towards the central banks that are moving forward with their decisions to stop the stimulus of the pandemic era.
The broader section of the currency market stayed on the risk-averse section. This is because the recognized safe-haven currencies such as the yen and Swiss franc have been edging higher.