Dollar stands tall in big week for FX markets

imageForex1 hour ago (Jun 14, 2021 04:25AM ET)

(C) Reuters. FILE PHOTO: An employee of the Korea Exchange Bank counts one hundred U.S. dollar notes during a photo opportunity at the bank’s headquarters in Seoul April 28, 2010. REUTERS/Jo Yong-Hak/File Photo

By Saikat Chatterjee

LONDON (Reuters) – The dollar consolidated gains on Monday after posting its biggest weekly rise in six weeks as traders cut their bearish bets before a much-anticipated Federal Reserve meeting that might signal a change in the outlook for U.S. monetary policy.

The U.S. central bank begins a scheduled two-day policy meeting on Tuesday. Recent data pointing to a surge in inflation has raised concerns that price pressures following the post-COVID economic reopening could force policymakers into an earlier tapering of currency-depreciating stimulus.

While consensus expectations are the Fed will remain on hold until 2023, some believe the failure of the dollar to weaken in recent days despite inflation-adjusted U.S. bond yields softening further signals a broader caution among investors.

“Market participants are wary of a hawkish surprise that could at least temporarily lift the U.S. dollar,” MUFG strategists said in a daily note.

Against a basket of its rivals, the greenback steadied at 90.5 in early London trading after rising as much as 0.4% last week, its biggest weekly rise since early May.

The dollar’s gains were aided by some unwinding of short dollar bets. In the week ended June 8, speculators had ratcheted up net short positions to the highest in nearly three months at $18.35 billion.

Caution ahead of the Fed meeting also pushed a Deutsche Bank (DE:DBKGn) gauge of implied currency-market volatility to the lowest since February of last year, dropping around 10% since the start of the month.

The British pound was the biggest loser among developed currencies on news that Britain was set to delay the end of social distancing measures as the government tries to slow a rapid rise in COVID-19 infections.

Against the dollar and the euro, the pound weakened as much as 0.2% in early London trading.

In cryptocurrencies, bitcoin traded above $39,000 after getting an almost 10% lift on Sunday, when Tesla (NASDAQ:TSLA) Inc CEO Elon Musk tweeted that the electric carmaker will resume allowing bitcoin transactions when miners who verify transactions use more renewable energy.

Dollar stands tall in big week for FX markets

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