By Yasin Ebrahim
Investing.com – The dollar took a breather Wednesday from its recent melt-up, but will remain “buy on dips” story as traders position for a liftoff in rates as soon as mid-2022.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.11%, to 95.81.
“The last few day’s upmove points towards a little breather [in the dollar],” Commerzbank FX and EM analyst Antje Praefcke said in a note.
“However, that would probably be an opportunity for the dollar bulls to buy the dollar at lower levels again. For me too the dollar remains a buy on dips’ short-term.,” Praefcke added.
The bullish outlook on the greenback comes a week after a hotter-than expected inflation report, strengthen expectations that the Federal Reserve will be forced to hike rates sooner rather later.
“[T]he US inflation data for October surprised clearly on the upside last week … this provided further limited support for the rate expectations,”{{0|Commerzbank said in a note.”
Fed speak has turned more hawkish in recent weeks, with St. Louis Fed President Jim Bullard, who tends to lean dovish, warning of the threat of elevated inflation persisting for longer than expected.
“If inflation just happens to go away, we’re in great shape for that. We’re set up for that,” Bullard said in an interview with Bloomberg on Tuesday.
“But if inflation doesn’t go away as quickly as many are currently anticipating, then it’s going to be up to the Committee to keep inflation under control going forward,” he added.
Still, the outlook on Fed monetary policy has been muddied somewhat amid speculation on whether President Joe Biden will give Fed Chairman Jerome Powell the nod to continue leading the U.S. central bank.
Biden has reportedly changed the plan for his nomination of Fed chair to before Thanksgiving from before the weekend.