Dollar Falls From 15-Month High, Central Banks Hold Interest Rates Steady Amidst Rising Inflation

By Naveen Athrappully
Naveen Athrappully
Naveen Athrappully
November 8, 2021 Updated: November 8, 2021

The dollar made a steady start on Monday but fell below the 15-week peak reached after the Nov. 5 release of jobs data, as wary investors remained watchful of the central bank’s continued tolerance of inflation amidst the market’s volatile interest rate projections.

Investors are waiting for U.S. Consumer Price Index data due on Wednesday. The inflation indicator will show whether the Fed’s insistence on not hiking interest rates holds water.

Following stronger-than-expected payrolls data, the dollar index was little changed, standing at 94.229 at 0853 GMT and 94.176 at 1257 GMT.

“The tightening labor market will keep pressure on the Fed to keep tightening policy going forward, and speed up rate hike plans if labor force participation does not improve as expected,” MUFG strategist Lee Hardman wrote in a note to clients.

The dollar steadied at $1.1573 per euro after briefly touching a 15-month record of $1.15135.

Repeating the Fed’s stance on inflation rates, Philip Lane, European Central Bank chief economist, told a Spanish newspaper that the bloc’s inflation is temporary and is expected to ease going into next year.

The Bank of England surprised investors by not hiking interest rates, leading to the sterling hitting a five-week low of $1.3425 on Nov. 5. After regaining composure, it bounced back to hold at $1.3487 on Monday.

“Central banks have distorted a whole lot of markets, pumping up the equity market and pumping up the bond market,” said Jason Wong, a strategist at the Bank of New Zealand in Wellington, according to Reuters.

“Currencies are sort of in the middle of all that, wondering what the hell’s going on,” Wong added, regarding the market holding ground with the risks incrementally increasing.

The Australian dollar was down 0.1 percent at $0.73992, while the New Zealand dollar was up 0.2 percent at $0.71395, owing mainly to Prime Minister Jacinda Arden’s announcement regarding removal of lockdown restrictions starting next month.

The dollar crept back from a one-week low to 113.49 yen in early Asia trade, while the yuan remained steady against the dollar, holding just under the key 6.4 level.

Chinese exports beat estimates but imports fell short, resulting in a trade surplus. Traders are awaiting the Chinese producer and consumer price data due on Wednesday. Annual producer price growth has been increasing 12 percent, which may result in further pressure on global supply chains.

“While the strong trade surplus this year should have somewhat supported the CNY exchange rates, the overall theme for USD-CNY is the stability,” Commerzbank senior economist Hao Zhou wrote in a client note.

Bitcoin recently jumped to a three-week high of $65,919, with some investors turning to cryptocurrencies to hedge against inflation. Ether hit a record of $4,768.07.

Oil prices steadied after the passage of the U.S. infrastructure bill, while Saudi Arabia’s state-owned producer Aramco increased the selling price for crude. U.S. crude was trading at $83.36, and Brent at $83.67 per barrel.