Dollar slips lower; Powell speech, GDP data due

By Peter Nurse - The U.S. dollar slipped lower in early European trade Wednesday with risk appetite growing on hopes of China easing its tight COVID-related mobility restrictions, although moves are small ahead of a key speech by Federal Reserve chair Jerome Powell.

At 02:55 ET (07:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 106.543.

China reported plans on Tuesday to speed up the vaccination of its vulnerable elderly citizens amid increasing public backlash against lockdown measures. This has been taken as a sign that the country’s authorities may be looking to scale back its anti-COVID policies, although there has been no official confirmation.

This has boosted risk appetite, with USD/CNY falling 0.2% to 7.1441, and the yuan set to record a 2% gain this month, even after Chinese business activity shrank more than expected in November as disruptions caused by COVID-related lockdowns continued to chip away at growth.

That said, moves in the foreign exchange market are relatively muted Wednesday as traders prepare for a speech by Fed Chair Jerome Powell at the Hutchins Center on Fiscal and Monetary Policy at Brookings.

The Fed meets in December to decide the next move on interest rates, and traders will be studying this speech, in addition to ADP jobs numbers and the second reading of third quarter GDP, for clues over the size of future hikes.

The Fed is widely expected to slow to a 50 basis point rate increase on Dec. 14, although some market participants are still looking for another 75 basis point hike.

This has resulted in net short U.S. dollar positions climbing to the highest level since July 2021 in the latest week, according to U.S. Commodity Futures Trading Commission data released on Monday.

EUR/USD rose 0.2% to 1.0350, climbing from a one-week low reached earlier Wednesday, ahead of the release of the Eurozone CPI data for November.

German and Spanish consumer price figures came in weaker than expected on Tuesday, suggesting a downside surprise for the Eurozone number is a possibility. This could point to an inflation peak having been reached in the region, triggering a lowering of rate hike bets for the European Central Bank.

GBP/USD rose 0.1% to 1.1963, the risk-sensitive AUD/USD rose 0.5% to 0.6718, while USD/JPY fell 0.1% to 138.50, despite Japan’s factory output falling for the second consecutive month in October.

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