Investing.com – The U.S. dollar fell in early European trade on Monday, trading near two-month lows ahead of key U.S. inflation data that will provide further clues about the timing of the Federal Reserve’s expected rate-cut cycle.
At 04:30 ET (0930 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 102.287 after posting a huge weekly loss of more than 1% last time. falling to levels last seen in mid-January.
Dollar still weak ahead of US CPI
The dollar took a hit last week after the Fed chief’s comments during his two-day testimony before Congress were seen by markets as dovish, suggesting the US central bank was preparing to begin cutting interest rates in the summer.
Friday’s mixed payrolls data (up 275,000 but rising to 3.9% in February after holding at 3.7% for three straight months) kept the Fed’s expected June rate cut on the table.
And now traders will be watching Tuesday’s data, trying to gauge how soon the Fed can start cutting interest rates.
Economists expect the consumer price index to rise 0.4% in February, following a faster-than-expected 0.3% rise in January.
“We expect inflation data to stop the dollar’s decline this week,” ING analysts said in a note.
“Changes in currency positioning over the past week no longer justify increased downward pressure on the US dollar unless key data starts to turn in favor of Fed easing. There is an important risk that some of the US dollar losses caused by Powell’s testimony will be recouped this week.”
Euro close to eight-week high
In Europe, it rose 0.1% to 1.0944, with the euro maintaining strength after hitting an eight-week high against the US dollar last week and posting its best weekly performance against the US dollar since the week ended on December 22 .
The ECB kept rates at a record high of 4% last week, hinting that June could be the month to start cutting interest rates to support the region’s stuttering economies.
Traders will also be keeping an eye on January eurozone data due later this week.
The December report showed a significant increase in production, which offset the annual decline. Another strong reading could be an encouraging sign for first-quarter GDP growth.
“This week we see some downside risks for the EUR/USD pair, and a correction could return it to the 1.0850-1.0900 area,” ING said.
“However, our call by the ECB and Fed for a first rate cut in June could still argue for a higher EUR/USD rate as the Fed must eventually deliver a larger easing package.”
traded 0.1% lower at 1.2841 ahead of the UK’s latest earnings report on Tuesday, with traders and the Bank of England focusing on wage growth amid speculation over the timing of the first rate cut.
Yen in demand ahead of Bank of Japan meeting
In Asia, trade traded 0.3% lower at 146.70, with the yen surging over the past two sessions to more than a month’s high, helped by growing confidence that the yen is close to ending its ultra-loose monetary policy stance.
An upward revision to GDP data showed the Japanese economy dodged a technical recession in the fourth quarter, giving the Bank of Japan more room to tighten policy earlier, perhaps as early as next week’s meeting.
dipped to 7.1840 before falling 0.2% to 0.6614 as bets eased on further rate hikes by the index.