Investing.com – The U.S. dollar fell on Thursday as traders weighed competing factors: benign U.S. inflation and a more aggressive stance from the Federal Reserve.
At 04:25 ET (0825 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.3% lower at 104.340 after trading at its strongest level since mid-May earlier in the week. .
The dollar awaits the publication of the producer price index
The dollar saw volatile trading on Wednesday, falling on the heels of the US inflation report, which was flat month-on-month in May despite market expectations of a 0.1% rise.
Before trimming some of those losses when the funds rate was left at 5.25%-5.5%, and clarifying that policymakers’ average forecast for the number of cuts this year has fallen to one from three in March.
However, “we continue to expect a first rate cut in September and a second cut in December,” Goldman economists said in a note.
That puts Thursday’s release into focus, with the headline figure expected to show monthly growth of 0.1% in May, down from the 0.5% rise in the previous month.
The data, which does not take into account volatility in food and energy prices, is expected to show monthly growth of 0.3%, down from the 0.5% rise in the previous month.
“A soft PPI reading today will raise expectations for the next 0.2% month-on-month PCE target and give both the Fed and the market a little more confidence that the central bank can cut rates in September. eventually,” ING analysts said in a note. “That’s why we have a downward arrow in the dollar today.”
Euro strengthens after new inflation data
rose 0.1% to 1.0812, extending gains from a 0.6% rise the day before as traders digested new regional inflation data.
fell 0.7% in May compared to the same month last year, and rose 3.6% year-on-year in May.
“EUR/USD had a good jump to 1.0850 yesterday and probably suggests that we are in some kind of broad trading range of 1.0720-1.0900 in the short term,” ING said.
“The two opposing forces here will be softer US price and economic activity data, which could potentially push the dollar complex lower against political risk in France, where an additional risk premium could still be built into the euro.”
fell 0.1% to 1.2790 after rising 0.5% overnight to $1.2798 following the release of US inflation data, while the UK will release its monthly CPI data next week.
“The UK CPI for May is due out next Wednesday and the core services component (5.9% year-on-year in April) may well decline,” ING said. “This is why we don’t want to chase the current sterling rally and are likely to see the top of this year’s range for GBP/USD at 1.2850/2900.”
Bank of Japan meeting due to take place
In Asia, trading rose 0.3% to 157.23, with traders now awaiting further policy signals on Friday.
The central bank is likely to keep rates steady but is expected to scale back some bond purchases in an attempt to tighten policy.
rose 0.2% to 7.2519, near a six-month high, as reports of increased U.S. controls on trade with China dampened sentiment toward the yuan this week.