Investing.com - The dollar edged lower in early European trade Thursday, with investors looking to Federal Reserve Chairman Jerome Powell for guidance as to how the central bank might alter its policy framework to help the U.S. recovery.
At 2:50 AM ET (0650 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 92.942. GBP/USD was flat at 1.3208 while EUR/USD was down 0.1% at 1.1824.
Powell is scheduled to address the Fed's annual central bankers' conference later Thursday, usually held in Jackson Hole, Wyoming, but being conducted virtually this year because of the ongoing Covid-19 pandemic.
The Fed chief is expected to discuss the results of the central bank's framework review, a study started nearly two years ago to explore how monetary policy should be adapted for a low interest rate environment. He is scheduled to begin his speech at 9:10 AM ET (1310 GMT).
Many expect Powell to reiterate support for an ongoing expansion of monetary policy to ensure the economic recovery remains on track, probably by advocating average inflation targeting. This would see the Fed allowing inflation levels to climb above its 2% target.
“There are, however, a couple of little problems with this. How does the Fed get inflation higher? And how does it make policy even more accommodative,” asked Robert Carnell at ING, in a research note.
“The entire credibility of such a strategy rests on the Fed being able to convince markets that these goals are achievable,” said Carnell. “Indeed, it runs the risk of simply drawing attention to how much inflation targets are being missed - more a credibility damaging shift, than a credibility enhancing one.”
Elsewhere, the USD/JPY pair rose 0.1% to 106.03. Japanese Prime Minister Shinzo Abe is due to address concerns over his health, and potentially tender his resignation, at a press conference on Friday.
The yen is likely to gain should Abe decide to resign, as his departure could see a shift in the policy of the aggressive monetary easing that has been one of his trademark policies.
The USD/CNY dropped marginally to 6.8843, as Sino-U.S. tensions ratcheted up with China's firing four medium-range ballistic missiles into the disputed South China sea on Wednesday while the U.S. imposed sanctions on a further 24 Chinese companies.