USD appreciated against other major currencies in the European session on Wednesday, as market participants awaited the U.S. inflation data for July, hoping to get further clues of when the Federal Reserve might start tapering its bond purchases.
The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.10% to 93.15.
Economists forecast the data to show that inflation rose 0.5% m/m and 5.3% y/y in July. The pace in June was 0.9% m/m and 5.4% y/y.
Hotter-than-expected inflation data may suggest that inflation in the U.S. is more persistent, challenging the Fed's “transitory” narrative, and will heighten the risk of a near-term QE tapering.
In addition, the news that the Senate approved a $3.5 trillion budget framework on Wednesday morning, a day after the upper chamber of the U.S. Congress passed a $1 trillion bipartisan infrastructure bill, added to concerns that a fiscal policy push could keep inflation higher for an extended period of time.
Several Fed policymakers, who spoke earlier this week, expressed views that the U.S. central bank should begin trimming its $120 billion in monthly bond purchases in the fourth quarter. The expectations of a sooner withdrawal of monetary stimulus in the U.S. were bolstered by Friday’s release of stronger-than-anticipated July jobs data.
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