Greenback holds beneath two month excessive as Fed coverage is in focus and pound sterling slips

© Reuters. FILE PHOTO: An employee counts US dollar bills at a money exchange in central Cairo, Egypt, March 20, 2019. REUTERS / Mohamed Abd El Ghany / File Photo

By Karen Brettell

NEW YORK (Reuters) – The dollar fell Thursday as investors assessed the likelihood the Federal Reserve will be more aggressive in containing high inflation if it persists while the pound fell after the Bank of England made no changes to their monetary policy.

Fed leaders have held mixed views on how long inflation is likely to stay high and when to tighten monetary policy after the Fed surprised markets last week by forecasting two rate hikes in 2023.

The dollar has fallen since hitting its two-month high on Friday during the Fed meeting.

"I suspect we'll have a little more consolidation and then more bullish dollar," said Erik Nelson, a macro strategist at Wells Fargo (NYSE 🙂 in New York.

"The Fed has notified the market of its inflation target and new mandate, and really just the idea that they would be completely and resolutely cautious forever … so I think there is more room for adjustment here," said Nelson.

The dollar fell slightly after data on Thursday showed fewer Americans filed new jobless claims last week as the labor market rebound from the COVID-19 pandemic amid a reopened economy.

Other data showed that orders for major US-made capital goods fell unexpectedly in May, likely being curbed by shortages in some products.

The next big US economic focus will be producer price data on Friday.

Most recently it was down 0.06% against a currency basket at 91.733. It is below a two-month high of 92.408 hit on Friday.

The pound sterling slid after the Bank of England said inflation would top 3% if the locked UK economy reopened, but rising above the 2% target would be "temporary" and most policymakers were in favor from keeping the economic stimulus at full throttle.

"While the underlying tone was quite upbeat and we think there was a clearer restrictive bias, it wasn't restrictive enough for those looking for a sharper turn after last week's FOMC meeting," TD analysts said Secuities in a report on Thursday.

The British pound recently lost 0.35% to $ 1.3916.

The euro gained 0.13% to USD 1.1942 over the course of the day. German business morale rose faster than expected in June and reached its highest level since November 2018 in light of the rising optimism of companies for the second half of the year in Europe's largest economy, according to a survey on Thursday.

The greenback rose to 111.11 Japanese yen overnight, its strongest since March 2020 before falling back to 110.78. Thursday's data showed that Japan's business service prices rose the fastest in eight months in May in May.

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