Dollar Edges Higher; Key Inflation Data Due

© Reuters.

By Peter Nurse

AiVIF.com - The dollar pushed higher in early European trade Friday, on course for its best week since June, as traders position for a tighter U.S. monetary policy in the near future.

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 94.315, near its highest level since September 2020 having gained over 1% so far this week, the largest weekly rise since late June.

USD/JPY fell 0.1% to 111.16, with the yen boosted by Japan's business mood improving for a fifth straight quarter in September. EUR/USD edged lower to 1.1579, near its lowest levels since July 2020, GBP/USD fell 0.2% to 1.3449, just above a 9-month low, while the risk sensitive AUD/USD fell 0.4% to 0.7198, just above one-month lows.

Foreign exchange traders have started positioning for the Federal Reserve to begin tapering its asset purchases before the year end, and for interest rate hikes starting in the second half of 2022.

Fed chief Jerome Powell stated Wednesday that resolving "tension" between high inflation and still-elevated unemployment is the most urgent issue facing the central bank right now.

U.S. second-quarter growth was revised slightly higher on Thursday, and the focus Friday will be on the release of the core personal consumption expenditures price index, the inflation measure the Federal Reserve uses to set policy.

This is expected to rise 0.2% in August and 3.6% year over year, unchanged on an annual basis from July, which was the highest level since May 1991.

Elsewhere, USD/CZK traded flat at 21.8660, after the crown posted sharp gains on Thursday on the back of the Czech National Bank hiking interest rates by 75 basis points, its biggest interest rate hike since 1997, after a spike of inflation. 

The increase was larger than the already big 50-basis point move that markets had priced in. It lifted the bank's two-week repo rate to 1.50%.