Dollar steadies amid pandemic concerns, inflation in focus

© Reuters. FILE PHOTO: A U.S. dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

By Julien Ponthus

LONDON (Reuters) - The safe haven dollar ticked up against most currencies on Monday as concerns about the pandemic made investors cautious, while they also awaited more clues about the global economic recovery before making their next moves.

With markets hyper-sensitive to any talk of early tapering, U.S. inflation data on Tuesday will be closely watched ahead of testimony by Federal Reserve Chair Jerome Powell on Wednesday and Thursday.

Meanwhile, the People's Bank of China's surprise policy easing on Friday, meant to boost the post-COVID economic recovery, failed to provide lasting momentum.

"While welcome, the move also signals that the authorities are concerned about China’s growth prospects, so it's mixed news," said Marshall Gittler, head of investment research at BDSwiss Holding.

The yuan was just slightly lower at 6.4750 per dollar after Chinese shares and bonds rose. [CNY/][.SS]

Economists polled by Reuters expect U.S. consumer prices for June to have risen 0.4% from May, and 4.0% from a year earlier, after two straight months of sharp gains.

Any signs that inflation could be more persistent than previously thought could fan expectations the Fed may exit from current pandemic-era stimulus earlier, supporting the dollar against other major currencies.

Conversely, more benign data could lead investors to think the U.S. central bank can afford to maintain an easy policy framework for longer, encouraging more bets on risk assets, including risk-sensitive currencies.

At 1108 GMT, the dollar was up 0.22% against a basket of currencies while the euro lost 0.26% at $1.1848 against the greenback.

Sterling fell 0.36% to $1.3860 while British Prime Minister Boris Johnson is expected to confirm plans to remove nearly all remaining COVID-19 restrictions in England from July 19, despite a surge of cases to levels unseen for months.

"In the UK there is optimism about the strength of the rebound, that with the further lifting of restrictions we will see additional demand emerging," said Colin Asher, senior economist at Mizuho in London.

"There are expectations the Bank of England may be one of the major banks to hike interest rates next year."

Although few investors expect the global economic recovery to be derailed by fresh waves of COVID-19 infections, vulnerable currencies such as the tourism-exposed Thai baht have taken a hit.

The baht was trading above Friday's low but has lost about 5% against the dollar in a month, and on Monday Thailand's central bank warned the economy may miss its projections as virus curbs hit growth. [EMRG/FRX]

Elsewhere in emerging markets, the rand sank more than 2% to a low of 14.4968 to the dollar as violence broke out after the jailing of former South African President Jacob Zuma, resulting in property damage and road closures.

Japan's safe-haven yen stood at 110.18 yen per dollar, off Thursday's one-month high of 109.535.

Cryptocurrencies were on the defensives with bitcoin down about 1.5% at $33,760 and ether down 1.2% at $2,113.