FX volatility low, dollar up slightly as investors wait on inflation

By Sinéad Carew

NEW YORK (Reuters) – The U.S. dollar edged up slightly and currency market volatility on Tuesday hit the lowest level in more than a year, as investors sat on the sidelines waiting for clearer signals on inflation levels and central bank policies around the world.

With inflation updates expected from China, Europe and the United States this week and an impending European Central Bank meeting on Thursday to be followed by a U.S. Federal Reserve meeting next week, currency investors appeared to be treading water while the S&P 500 dipped very slightly.

Range-bound currency markets meant a fall in volatility. The Deutsche Bank Currency Volatility Index hit its lowest level since February 2020.

“All the major currencies are having muted reaction right now as they wait,” said JB Mackenzie, managing director of futures and forex at TD Ameritrade. “We’re looking at the inflation numbers to see how the economies are running. Are they very hot and, if so, does that mean there could be a reaction from central banks globally?”

Traders on Tuesday sent longer-term U.S. Treasury yields to their lowest in more than a month after a report showed small business owners less confident, and narrowing the spread of a closely watched part of the yield curve.

The dollar index was last up 0.12%, while the euro fell 0.09% against the greenback to $1.2179.

The British pound fell 0.15% to $1.4155 and the Australian dollar eased 0.21% to $0.7739, with both stuck in ranges seen over the past couple of months.

Cryptocurrencies were more volatile on the day with Bitcoin last down 3% at $32,544 after hitting a session low of $31,025 – also its lowest level since May 19. Ether was down 7% at $2,464.47.

(Additional reporting by Tommy Wilkes in London, Editing by Robert Birsel, Will Dunham and Bernadette Baum)