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Dollar Rides Flight to Safety Higher Ahead of the Fed Minutes

imageForex37 minutes ago (Jul 06, 2021 03:14PM ET)

(C) Reuters.

By Yasin Ebrahim

Investing.com – The dollar inched higher Tuesday, as investors fled to safety amid weaker-than-expected services data just a day ahead of the minutes of the Federal Reserve’s June meeting that could provide further clues on tapering.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, climbed by 0.14% to 92.54.

The June ISM Services PMI slipped by more than expected in June to 60.1 from 64.0 last month, and missed economists’ forecasts of 63.5.

The soft services activity stoked some worries that the rapid pace of economic expansion is in its final innings, triggering a rush to safety and benefiting the greenback.

The bid up in the dollar comes just days after the U.S. Labor Department reported Friday that the economy created more jobs than expected. A deeper look into the data, however, suggests there remains plenty of slack in the labor market amid a supply shortages that could force the Federal Reserve to tighten monetary policy later than expected.

“We expect it [Fed] to provide forward guidance in September and announce tapering at the end of 1Q22, one quarter later than consensus,” Morgan Stanley (NYSE:MS) said. “There are inherent uncertainty bands around this view and given the speed of the labor market recovery I would place the risk of a sooner than later start to tapering,” Morgan Stanley Economist Ellen Zentner said in a note.

Further insight into the Fed’s thinking on monetary policy including tapering could arrive as soon as Wednesday, with release of the minutes of the central bank’s meeting on July 15 to July 16.

“In the minutes, we will be looking for more details on the discussion about liftoff and tapering as well as the outlook for inflation as there was a clear shift in tone to the hawkish side coming out of this meeting,” Jefferies (NYSE:JEF) said in note.

Dollar Rides Flight to Safety Higher Ahead of the Fed Minutes

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