Dollar tests 2021 lows ahead of Fed minutes, bitcoin tumbles

[May 19, 2021]  By Julien Ponthus

LONDON (Reuters) - The dollar hovered around its lowest levels of the year against major currencies on Wednesday as inflation-wary traders awaited U.S. Federal Reserve minutes and China's tough stance on cryptocurrencies sent bitcoin and Ether tumbling down.

With data showing last week the fastest increase in U.S. consumer prices in more than a decade, fears are growing that interest rates will be raised sooner than expected despite Federal Reserve policymakers stressing the spike is temporary.

The minutes from the Fed's most recent meeting due later on Wednesday are expected to confirm that policymakers think a rate hike is still in the distance but any discordant note on that sensitive subject could have a significant market impact.

The dollar index was flat against its basket of six major currencies in morning trading in Europe at 89.804 but in striking distance of its January 8 low of 89.664.

Exposing the pressure mounting on prices across the global economy, UK inflation more than doubled in April to 1.5% from a month earlier.

"We do not believe that higher inflation will be fully transitory as many in markets contend and as global central bankers seem to presume", commented Kallum Pickering, an economist at Berenberg, adding he believes inflation is at a turning point.

The British pound bought $1.4182, just below the $1.4240 level touched in February, its highest since 2018.

South Africa and Canada were also due to publish consumer price data later on Wednesday.

Against the Canadian dollar, the greenback traded at C$1.2071, close to its weakest since May 2015.

The euro was at its highest against the dollar since the beginning of January at $1.2223.

 Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking

In the Southern Hemisphere, the selling pressure on commodities weighed on the Australian and New Zealand dollars which both retreated just short of 0.4% against the dollar.

Cryptocurrencies retreated sharply after China banned its financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.

Bitcoin tumbled to a three-month low of $38,514 before limiting its losses and claiming back the closely-watched $40,000-mark.

Rival digital currency ether dropped to $2,856 then recouped some of its losses, trading down 12.7% at $2,950.

Chinese financial institutions will not be able to offer cryptocurrency registration, trading, clearing, and settlement, in a blow to investors who were betting that digital assets will gain mainstream status.

"China has for some time been putting pressure on the crypto space, but this marks an intensification – other countries might follow now as central banks make strides towards their own digital currencies", wrote Neil Wilson, chief market analyst at Markets.com.

"Until now western regulators have been pretty relaxed about bitcoin, but this might change soon", he added.

(Editing by Jacqueline Wong, Kim Coghill, William Maclean)

[© 2021 Thomson Reuters. All rights reserved.]

Copyright 2021 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.