By Peter Nurse – The dollar weakened in early European trade Tuesday, with Federal Reserve officials keen to stick to the recent mantra that inflationary pressures were temporary in nature and the central bank’s ultra-easy monetary policies were here to stay.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 89.735, hovering above a four-month low.

EUR/USD traded 0.1% higher at 1.2231, not far removed from last week’s three-month high of 1.2245, USD/JPY was largely flat at 108.73, GBP/USD rose 0.2% to 1.4180, while the risk-sensitive AUD/USD was up 0.1% at 0.7758.

Minutes from the April Federal Reserve policy-setting meeting last week gave the dollar a short-lived boost as they indicated that a number of policymakers wanted to discuss tapering the central bank’s bond purchases over worries that the considerable stimulus already pouring into an economy on the mend could stoke inflation.

However, a series of Fed officials–Governor Lael Brainard, Atlanta Fed President Raphael Bostic and St. Louis’s James Bullard–pushed back Monday against the threat that a spike in price pressures will prove lasting as the U.S. economy reopens, eager to make sure the message remained that the central bank was not going anywhere soon.

"I think there will come a time when we can talk more about changing the parameters of monetary policy, I don't think we should do it when we're still in the pandemic," Bullard said, and was typical of their comments.

More softish data would add weight to their views, and later Tuesday the market expects new home sales to drop nearly 5% in April from the previous month and consumer confidence to erode a little in May.

Elsewhere, USD/TRY rose 0.2% to 8.3971, with the Turkish lira under pressure once more after President Recep Tayyip Erdogan dismissed the deputy governor of the country’s central bank, Oguzhan Ozbas, replacing him with Semih Tumen, a labor economist and professor of economics at Ankara-based TED University.

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This move comes just two months after Erdogan fired the bank’s third governor in less than two years, Naci Agbal, a move that shocked the market as he had been seen as trying to restore the central bank’s credibility. The lira has lost about 14% against the dollar since he was sacked.

USD/INR was largely flat at 72.857, with the Indian rupee outperforming, up 1.5% against the dollar in May, on signs that India’s virus crisis may be easing.

India on Tuesday posted 196,427 new coronavirus cases over the last 24 hours, its lowest daily rise in infections since April 14.

USD/IDR was largely flat at 14,345 with Bank Indonesia expected to hold its policy rate steady later Tuesday at a record low of 3.5% to protect the rupiah.

The rupiah fell 1.1% last week, its largest decline since February, amid fresh signals that the U.S. Federal Reserve could start considering unwinding stimulus this year, which has pressured the emerging markets.

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