The dollar sold-off against its peers on Monday, and then again this morning, as investors continued to calm bets that the Federal Reserve would raise interest rates any time soon.

Last month’s much higher-than-expected inflation print got the market questioning whether the Fed would be forced into tightening monetary policy quicker than they had outlined in their latest interest rate projections. Since then, however, FOMC members have continued to strike a dovish tone and insist that the bank would look past a spike in US inflation when making its upcoming policy decisions. Fed policymaker Bullard was the latest such member to calm rate hike expectations on Monday. He noted his view that the increase in US inflation would be mostly temporary and that now was not the time to consider changing monetary policy, so long as the country is still in the midst of a global pandemic.

The next few months of data will prove crucial in the timing of the Fed’s next policy move - we expect heightened volatility surrounding upcoming nonfarm payrolls and inflation reports in particular. This afternoon’s US housing and consumer confidence data will not quite have the same impact, but will be closely monitored by investors nonetheless.

EUR/USD rises to highest level since January

The pound briefly rallied back above the 1.42 level this morning, although failed to hold onto its gains. Similarly to the US, inflation in the UK is beginning to pick up speed and market participants are looking to the central bank to ascertain whether or not action will be taken to rein in rising prices. Bank of England governor Andrew Bailey appeared unflustered about the prospect of higher prices in his comments on Monday. He stated that he didn’t see any long-term implications from a pick-up in UK inflation and that he’s confident the current policy settings are appropriate.

Unlike sterling, the euro has managed to hold onto its gains so far this morning and is currently trading around its strongest position since the start of the year. Economic data out of the bloc has turned positive of late, and there is real optimism that a strong rebound is on the cards now that restrictions are beginning to be unwound. IFO sentiment data out this morning was resoundingly strong. The expectations index, for instance, jumped to 102.9 this month from a revised 99.2, its highest level in around two years. There’s no major data out of the Eurozone in the next 24 hours or so, but a speech by ECB member Lane could shift the euro this afternoon.