Market News

By Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed

NEW YORK, May 21 (Reuters) - The U.S. dollar edged up against the euro on Tuesday, as Federal Reserve policymakers said it is prudent for the U.S. central bank to wait several more months to ensure that inflation really is back on a path to the 2% target before commencing interest rate cuts.

Against other currencies, the greenback was mostly flat ahead of the U.S. Memorial Day holiday next week.
"Amid a paucity of economic data catalysts this week, trading ranges have narrowed across currency markets. The dollar remains on a solid footing however, bolstered by a drumbeat of high for long messages from Fed officials," said Karl Schamotta, chief market strategist, at Corpay in Toronto.

Fed Governor Christopher Waller told the Peterson Institute for International Economics in Washington, on Tuesday, he would need to see several more months of good inflation data before he would be comfortable supporting an easing in the stance of monetary policy.

Waller, however, did put a pin in any speculation that interest rates may need to rise again for demand to soften enough to ease price pressures further, saying the latest inflation data is "reassuring" and the probability of a rate hike is "very low."

Atlanta Fed Chair Raphael Bostic also spoke on Tuesday and warned against cutting rates too quickly. The Fed, he said, needs to be cautious about approving its first rate cut to be sure it does not touch off pent-up spending among businesses and households, and put the central bank in a position where inflation starts "bouncing around."
"Fed speakers are driving the market - and they, so far, haven't said anything traders didn't expect," said Helen Given, FX trader, at Monex USA in Washington.

"Barring a surprise from the FOMC (Federal Open Market Committee) minutes tomorrow afternoon, it's likely that this could stay a fairly quiet week." Fed Chair Jerome Powell, in his press briefing after the Fed held rates steady earlier this month, also ruled out rate hikes. "What that does is it takes out the tail-risk scenario that the Fed is still thinking about hikes because they are effectively questioning their assumption that rates are restrictive enough," said Vishal Khanduja, co-head of Broad Markets Fixed Income at Morgan Stanley Investment Management. 

The euro was 0.05% lower at $1.0852.