Roller-Coaster Scenario With U.S. Dollar

The greenback rose slightly in London’s trading session on Wednesday morning. In reaction to the latest inflation data, the Fed had doubts about the tapering of assets that will commence in 2021, thus keeping the U.S. currency within recent ranges.

U.S. Dollar Index, which measures how strong the dollar is against a basket of currencies, rose 0.04% to 92.648 as of the time of writing.

As a result, USD/CNY rose by 0.08% to 6.4433. China’s latest economic data earlier revealed that industrial production in August grew at a slower pace than expected, at 5.3%. The fixed-asset investment was up 8.9% year-to-year. 2.5% growth was sighted in retail sales.

During the week, the dollar traded in a range of 92.3 to 92.9 as some central bank officials urged the central bank to begin asset tapering by the end of 2021.

The U.S. consumer price index (CPI) rose 4% over the past year and 0.1% over the previous month in August, according to data released on Tuesday. Also reflected in the data were annual increases of 5.3% and monthly increases of 0.3%.

Despite the softer print, the Fed appears to have no need to taper in September. But November or December now seems a better guess for tapering this year.

Next week’s Fed policy decision is expected to provide more clues regarding the timing of the current cycle.

According to the ECB, normalizing monetary policy is not an immediate priority, as it states that the Pandemic emergency purchase program will operate “with a total envelope of €1,850 billion at least until the end of March 2022” and until the Federal Open Market Committee (FOMC) gauges the end of the Coronavirus crisis phase, with the Euro currency, might suffer ahead of the FOMC’s September 22 interest rate decision as Chairman Jerome Powell and Co. adjust their strategy.

A further decline in the exchange rate may fuel the recent flip in retail sentiment, similar to what we saw earlier this year. Until then, speculation surrounding the ECB and FOMC may swing the EUR/USD as both central banks maintain a result-based monetary policy approach.