The US dollar depreciated against six currencies on Wednesday after weaker -than -expected inflation data on Tuesday. This carries an indication that the Fed is unlikely to reduce asset purchases in the short term.
The US dollar index traded at a trading level of 92.463 down around 0.3% since yesterday following inflation data and then began to record a recovery due to a fall in Wall Street shares.
At a time when the recovery of the U.S. dollar was also driven by an unexpected fall in import prices in August and more -than -expected readings for the NY Fed’s business outlook.
The U.S. dollar index against six major currencies has so far traded between 92.3 and 92.9 over the past week as some Fed officials suggested the U.S. central bank could reduce bond purchases by the end of the year.
Shaun Osborne, head of FX strategy at Scotiabank, the US dollar is struggling to gain momentum after weak NFP and CPI data will affect the Fed’s decision. At the same time investors are also taking into account the momentum factor in the weak stock market.
Markets will focus on next week’s FOMC meeting to get more clues on tapering and interest rates. Tapering will typically push the U.S. dollar to strengthen as it carries an indication that the Fed tends to implement tighter monetary policy.
