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LONDON (Reuters) – The dollar fell during a calm Asian session on Thursday, after weaker-than-expected US inflation data for January and a reiteration of the Federal Reserve’s accommodative policy, but recovered some losses at the opening of European markets.
Core inflation in the United States was zero last month, according to Wednesday’s data, against market expectations of 0.2%.
Federal Reserve Chairman Jerome Powell has said that if he expects base effects and pent-up demand when the economy fully reopens to boost inflation, it will likely be transitory, citing three decades of lower and stable prices.
Powell also reiterated that the central bank’s new policy framework could accommodate annual inflation above 2% for some time before raising rates, reinforcing market expectations of low dollar returns.
Movements in the currency market were weak overnight due to the Lunar New Year holidays in Japan and China, but the dollar fell nearly two weeks lower against a basket of currencies.
At 0805 GMT, it was lower on the day at 90.411, after recovering some losses overnight as European markets opened.
“Any change in political orientation (towards a hawkish and less accommodating side) is not imminent, US entry rates must remain anchored, the US curve should steepen further and real rates will remain deeply negative”, ING strategists FX written in a note to clients.
“As the global economy begins its post-winter recovery in the second quarter, this suggests more upside for cyclical currencies, while negative US real rates should also offer a helping hand to low-yielding rates, such as l ‘EUR against the dollar,’ they said.
At 0806 GMT, the euro was little changed against the dollar, at $ 1.2121.
The Australian dollar – which is seen as a liquid indicator of risk appetite – rose 0.3% to 0.7743 against the dollar, after hitting near a two-week high overnight .
The pound was little changed at $ 1.3825, below the three-year high of $ 1.3865 reached on Wednesday.
Oil prices have fallen, abandoning some recent gains after Brent strengthened for 9 consecutive sessions. The commodity-linked Norwegian krone eased from Wednesday’s one-year high against the euro and the pair changed hands at 10.261 at 0817 GMT.
Elsewhere, US President Joe Biden and his Chinese counterpart Xi Jinping have spoken for the first time since the US election. Biden said a free and open Indo-Pacific was a priority and raised concerns about China’s actions in Hong Kong, Xinjiang and Taiwan.
“President Biden appears to be laying the groundwork for his approach to China which might be somewhat different from Trump’s in some ways, but the bottom line is that the United States sees China as a ‘strategic competitor’,” he said. wrote Commerzbank Senior Economist Hao Zhou in a note to clients.
With the Chinese markets shutting down, the yuan barely reacted to the phone call.
Bitcoin was trading at around $ 44,682 at 8:25 a.m. GMT. The cryptocurrency, sometimes seen as a hedge against inflation, has fallen about 7% since Tuesday’s record high. Ethereum has also fallen from recent highs.
Reporting by Elizabeth Howcroft, editing by Larry King
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