FX volatility at Feb 2020 lows with dollar gaining slightly

NEW YORK: The U.S. dollar edged up slightly and currency market volatility on Tuesday fell to its lowest level in more than a year, as investors sat on the sidelines waiting for clearer signals on central bank policy and inflation levels.

With an impending European Central Bank meeting on Thursday and U.S. inflation data due the same day, and a U.S. Federal Reserve meeting next week, currencies appeared to be treading water while the S&P 500 dipped very slightly.

Range-bound currency markets mean a fall in volatility. The Deutsche Bank Currency Volatility Index hit its lowest level since February 2020.

"The reasons we're rangebound today on the dollar overall is we've a lot of option expiries in play," said Erik Bregar, head of FX strategy at Exchange Bank of Canada. "The big events of the week are going to be the Bank of Canada meeting tomorrow and Thursday's session has U.S. CPI (consumer price index), ECB meeting and a big 30-year U.S. bond auction."

Traders on Tuesday sent longer-term U.S. Treasury yields to their lowest in more than a month after a report showed small business owners less confident, and narrowing the spread of a closely watched part of the yield curve.

The U.S. dollar found a bit of support on Tuesday as investors prepared for the inflation data after Friday's weaker-than-expected jobs data, which has eased concerns about an early tapering of the Federal Reserve's monetary stimulus.

The euro fell marginally as data showed German industrial production numbers declined in April.

The dollar index rose 0.15per cent to 90.107, while the euro fell 0.13per cent against the greenback at US$1.2174.

The British pound fell 0.34per cent to US$1.4126 and the Australian dollar eased 0.25per cent to US$0.7735, with both stuck in ranges seen over the past couple of months.

Cryptocurrencies dropped but trading was generally calm. Bitcoin was last down 2.99per cent at US$32592.63, while ether fell 5per cent to US$2,457.78.

(Additional reporting by Tommy Wilkes in London, Editing by Robert Birsel, Will Dunham and Bernadette Baum)