The dollar edged higher in early European trade Monday, with this safe haven supported by concerns over fresh Covid-19 outbreaks in some Asian countries. However, gains are small ahead of the minutes of the latest Federal Reserve meeting.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 90.382.
EUR/USD traded 0.1% lower at 1.2130, GBP/USD was down 0.1% at 1.4090, just off a two-and-a-half month high as Britain reopens its economy after a four-month lockdown. USD/JPY was 0.1% lower at 109.30, while the risk-sensitive AUD/USD fell 0.3% to 0.7753.
India has been hit very hard by the Covid-19 pandemic, as a new strain of the virus first found there fueled a surge in infections that has risen to more than 400,000 daily.
Although it reported a decline in new coronavirus cases on Monday, World Health Organization Chief Scientist Soumya Swaminathan was quoted as saying in the Hindu newspaper that “there are still many parts of the country which have not yet experienced the peak.”
Adding to this, Japan, Singapore and Taiwan have both announced new restrictive measures as they try to combat new outbreaks, sparking fears the Indian strain was spreading throughout Asia and resulting in gains for the greenback.
However, these advances have been small as traders wait for Wednesday’s release of the minutes from April’s Federal Reserve meeting, particularly in the wake of the data surprise on inflation last week.
“While surging prices are a clear world-wide phenomenon and we agree that the Fed will have to hike earlier than it currently indicates (possibly in Q1 2023 rather than in 2024 as the Fed currently forecasts) an imminent tightening from the Fed seems unlikely,” said analysts at ING, in a note.
“This means that in the coming months, the prime USD drivers should be deeply negative front-end real rates and the rebounding global economy.”
USD/HUF fell 0.2% to 291.50 and EUR/HUF dropped 0.2% to 354.03, with the forint climbing to 17-month highs after Barnabas Virag, the deputy governor of Hungary’s central bank, said Monday the central bank will adjust short-term rates proactively to tackle rising inflation risks as the country’s economy fully reopens from June.
This is part of a general theme in central and eastern European central banks, as they fret about rising inflation levels and the need to protect their currencies.
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