By Karen Brettell
NEW YORK, Aug 24 (Reuters) – The dollar edged higher on Monday before Federal Reserve Chairman Jerome Powell this week will give a highly anticipated speech about the U.S. central bank’s policy framework review.
A sharp dollar selloff against the euro has paused, with the greenback getting a boost on Friday after data showed a recovery in U.S. business conditions, while European data showed slowing improvement.
However, “we’re just kind of moving sideways,” said Erik Nelson, a macro strategist at Wells Fargo in New York. “Positions have gotten stretched, especially in the euro, and I think you need another pullback before we can get another big leg higher.”
Powell’s speech on Thursday will likely be the next major dollar driver, with investors watching to see if he signals that the U.S. central bank will shift its inflation target to an average. This would allow inflation to rise higher than previously before the Fed raises rates, making up for decades of benign price increases.
“I think we could get some pullback in foreign currencies and dollar strength if Powell doesn’t really, really strongly come out and say we’re doing inflation average targeting,” Nelson said.
The euro EUR= fell 0.06% against the dollar to $1.1788, after hitting a more-than-two-year high of $1.1965 on Friday before the data.
The dollar index against a basket of major currencies =USD gained 0.12% to 93.31.
The dollar was also boosted by improving risk appetite after the U.S. Food & Drug Administration (FDA) on Sunday said it authorized the use of blood plasma from patients who have recovered from COVID-19 as a treatment for the disease.
The S&P 500 and Nasdaq scaled new highs on Monday. .N
The number of new cases of the novel coronavirus reported in the United States fell 17% last week, the fifth straight week of declines, according to a Reuters tally of state and county reports.
Republicans will make their case this week that the U.S. economic and political future depends on the re-election of Donald Trump at a four-day party convention that will feature the president speaking every night.
“We hope to get some firm direction when it comes to potential economic proposals that the Trump administration may pursue if Trump secures a second term,” analysts at NatWest Markets said on Monday in a report.
Currency bid prices at 3:31PM (1931 GMT)
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(Reporting by Karen Brettell; Additional reporting by Elizabeth Howcroft in London; Editing by Will Dunham and Andrea Ricci)
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