The dollar pushed higher in early European trading Friday, with attention turning to next week’s Federal Reserve meeting after the European Central Bank’s dovish performance on Thursday.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 92.865, but still below Wednesday’s 3 1/2-month high of 93.194. 

USD/JPY rose 0.1% to 110.28, GBP/USD fell 0.1% to 1.3754, despite retail sales rising 0.5% in July, more than expected, while the risk-sensitive AUD/USD fell 0.1% to 0.7370.

Additionally, EUR/USD was flat at 1.1770, having slipped during Thursday’s session after the ECB strengthened its forward guidance on interest rates, tying them more closely to inflation, suggesting an even longer period of steady or lower policy interest rates.

“The ECB’s Staff currently projects that inflation will reach just 1.5% by the very end of its horizon, which runs until 2023,” said analysts at ABN Amro, in a note. “In addition, the trajectory of inflation is very modestly upward sloping … This would be consistent with policy rates remaining where they are through 2024.”

There are a slew of surveys on the manufacturing and services sectors in both Europe and the U.S. later Friday, which are expected to show a slight softening of activity, albeit from high levels, but the market's next major focus is likely to be the Federal Reserve's policy meeting next week.

Coronavirus cases have started to rise again in the regions of the U.S. where there has been a low vaccination pickup since the previous meeting in mid-June, but the meeting is still expected to produce some advancement in the discussions for a tapering of stimulus.

Also of interest, the Bank of Russia meets later Friday and is expected to lift its benchmark interest rate as it struggles to combat surging inflation.

The central bank has already raised rates by 125 basis points this year. But with annual inflation at a five-year high of 6.5%, way above the 4% target, a further hike of as much as 100 basis points is likely.

At 2:55 AM ET, USD/RUB traded 0.4% lower at 73.744, with the ruble remaining one of the top four emerging-markets performers this year.

By Peter Nurse, 23 July 2021. Investing.com