Dollar Drifts Higher; Next Week's Fed Meeting Looms Large

© Reuters.

By Peter Nurse

AiVIF.com - The dollar drifted higher Thursday, with traders keeping their powder dry ahead of next week’s Federal Reserve meeting, looking for indications on when the central bank will start withdrawing its monetary stimulus. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 92.612.

The index has been stuck in a trading range between the two-week high of 92.887 seen at the start of the week and Tuesday’s one-week low of 92.321 after a softer-than-expected inflation report.

USD/JPY traded flat at 109.36, while EUR/USD dropped 0.2% to 1.1795, not helped by weak car registration numbers for August. GBP/USD fell 0.2% to 1.3812, while the risk sensitive AUD/USD fell 0.3% to 0.7310, despite the country's jobless rate unexpectedly falling to 4.5%.

The foreign exchange market is now focusing squarely on the Federal Open Market Committee's two-day policy meeting next week, expecting it to provide some clarity on the outlook for both tapering and eventual interest rate hikes.

“If anything, the risks for the dollar heading into next week’s Fed meeting may be slightly tilted to the downside if markets cement their view that the tapering announcement will indeed be delayed,” said analysts at ING, in a note.

Thursday’s U.S. retail sales for August could well add to the view that tapering may be paused, as the release is expected to show, at 8:30 AM ET (1230 GMT), that sales weakened again in August after they fell in July. On a month-over-month basis, they are seen 0.8% lower compared with July’s 1.1% erosion.

Additionally, the number of individuals who filed for unemployment insurance for the first time in the U.S. is also seen rising to 330,000 for the week ending Sept. 11 from 310,000 for the week before.

Elsewhere, NZD/USD rose 0.1% to 0.7110, after data released earlier Thursday showed the economy grew at a much faster pace than expected, with gross domestic product accelerating to 2.8% in the second quarter.

This strong growth cemented the view that the country’s central bank will start lifting interest rates in the near future, having shelved a rate hike last month in response to an outbreak of Covid-19 that triggered a harsh lockdown from the government.