Dollar index steady as markets seek clues to interest rate moves

NEW YORK (Reuters) – The dollar index traded in a narrow range on Thursday as traders looked toward an upcoming inflation report closely watched by the U.S. Federal Reserve.

FILE PHOTO: A packet of former U.S. President Abraham Lincoln five-dollar bill currency is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron/File Photo

The index, which was down 0.1% in the morning in New York, is heavily weighted toward the euro and showed little movement as U.S. bond yields ticked up on new economic data showing declining job losses.

The euro was up 0.1% at $1.2203.

But the British pound rose 0.4% to $1.4173 after a Bank of England policymaker said the central bank is likely to raise interest rates well into next year and that an increase could come earlier.

“The market is reacting to a hawkish headline and that’s why we saw sterling gallop,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada.

Sterling’s strength helped lift the Canadian dollar against the greenback, Bregar added. The U.S. dollar fell 0.5% to 1.20613 Canadian dollars.

The Bank of Canada has been quicker than other central banks to pull back support for economic growth.

The currency moves show that beneath the calm of the dollar index, foreign exchange portfolio managers and strategists are anxiously anticipating different moves from central banks to pace rate hikes to control inflation as their economies recover from the pandemic.

China’s yuan appreciated to 6.368 per dollar in offshore markets, a three-year high, and then eased off to Wednesday’s level. Investors have been raising their bets on further strength, confident that the People’s Bank of China is not displaying discomfort with the rally.

Market attention now turns to U.S. inflation data due on Friday. A jump in prices could be seen as prompting the Fed to scale back its easy money policies.

Economists expect core PCE (personal consumption expenditures) prices to jump 2.9% year-on-year in April, compared with a year-on-year rise of 1.8% a month earlier.

Cryptocurrency bitcoin rose about 3% to $38,397 and ether lost 1% to $2,858.

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