Fundamental Analysis

Dollar Index Steady Above 92 Key-Level, Sterling Flat Ahead Of BOE Decision

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On Thursday, the dollar index was moving sideways above the 92 key-level in Asia, as investors ignored another aggressive warning from North Korea and instead were cautious whether US inflation data released later today would change the chances of the Fed raising interest rates again this year. Meanwhile, the pound was flat at yesterday's lows ahead of the Bank of England's policy meeting later today.

Early in Asia, the North Korean regime threatened to use its nuclear weapons to “sink” Japan and turn the US into “ashes” for their supportive stance on the recent UN decision to approve additional but softer sanctions on its latest nuclear test. However, forex markets reacted little to the renewed North Korean warnings, keeping their eyes mostly on the US consumer price index which is expected to accelerate slightly from 1.7% growth in July to 1.8% in August on a yearly basis. If this expectation is realized or exceeded, it could raise the odds for a third rate hike this year.

Besides that, developments around US fiscal policy seem to support the dollar as congressional committees are expected to create an outline regarding tax reforms in the upcoming weeks starting on September 25. Moreover, the Speaker of the House of Representatives, Paul Ryan, argued on Wednesday that potential tax cuts would be reimbursed by faster economic expansion.

The dollar index was trading flat during Asian hours around 92.40 after a strong rally yesterday which led the index to a 10-day high of 92.48. Dollar/yen edged down from a one-month high of 110.72 early today to 110.45, while dollar/swissie retreated to 0.9648 after it touched a one-month high of 0.9659 yesterday.

Gold continued its downtrend, falling to a two-week low of $1,319.07 per ounce before it climbed to $1,321.34.

The euro weakened to a two-week low of $1.1865 during the Asian session after the ECB's chief economist Peter Praet reiterated that an accommodative monetary policy is needed for inflation to reach the central bank's target of 2%, saying that a “steady hand” should be maintained in policy as inflation still has room to rise.

Meanwhile, in the UK, BOE policymakers are preparing to launch their policy meeting at 1100GMT today, with markets anticipating rates to remain steady with a vote of 7-2. However, July's disappointing figures on wage growth will likely put the BOE members in a dilemma on how to cope with rising inflation which fluctuates near 3%, above the central bank's target of 2%.

In terms of data, Australia published upbeat labor data for the month of August, while Chinese numbers on retail sales and industrial production came in lower than expected.

The aussie partially reversed yesterday's losses touching a session high of $0.8015 in the wake of better-than-expected labor readings. However, a few hours later, weaker Chinese data pushed the currency down to $0.7997.

The kiwi dipped into losses, touching a one-week low of $0.7208 after polls for September 23 elections showed on Thursday that the opposition Labour Party moved to the front position, obtaining the support of 44%, while the governing National Party, which has led the polls so far, attracted a backing of 40%.

Looking at oil prices, WTI crude and Brent were down at $49.27 per barrel and $55.01 respectively.

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