Dollar juggles as Fed officials support higher-for-longer

EURUSD was stuck in a tight range near 1.0850 in Tuesday’s European trading. The major currency pair is expected to continue its sideways performance as the US Dollar stabilises ahead of the Federal Open Market Committee (FOMC) Minutes later this week and the preliminary S&P Global Purchasing Managers Index (PMI) data for May.

The Euro trades relatively firm against the USD as uncertainty over the European Central Bank extending the rate-cut cycle beyond June has deepened. ECB policymakers are comfortable with the central bank starting to lower its three key interest rates from the June meeting, but are reluctant to commit to any further rate path and said they prefer to remain data-dependent.

Some ECB policymakers cautioned that a follow-up rate cut in the July meeting could revamp price pressures and offset the impact of the job done to tame sticky price pressures.

As for the United States, Federal Reserve officials continue to emphasise the need to maintain the restrictive policy framework as they are not convinced that price pressures will sustainably return to the desired rate of 2%.

US inflation declined as expected in April. However, Fed policymakers want to see more good inflation data to gain confidence that price growth is on course to return to the 2% target.

Therefore, Fed policymakers reiterate that the current monetary policy is in good shape and needs to remain at its current levels.

On Monday, Fed Vice Chair for Supervision Michael Barr said, “Q1 inflation was disappointing and did not provide the confidence needed to ease monetary policy”.

Barr vowed to allow more time for a tight policy stance to do its job, Reuters reported.

Separately, Atlanta Fed President Raphael Bostic told Bloomberg TV that officials would take a while to be certain that inflation will come down to 2%.

EURUSD – Daily Chart by TradingView