Investing.com – The U.S. dollar steadied on Tuesday, mostly drifting ahead of the release of key inflation data that is likely to weigh on the interest rate outlook.
At 03:30 ET (0830 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 105.250 in range-bound trading.
Dollar calms ahead of key inflation data
The dollar, and the broader foreign exchange market, saw quiet trading earlier this week as traders await the release of the latest US inflation data, which is likely to shape near-term sentiment around a potential rate cut.
The April report is due later on Tuesday, ahead of a key consumer price index report on Wednesday, which is expected to show a 0.3% month-on-month increase in April, down from 0.4% in the previous month.
The Federal Reserve has made clear that any potential rate cut is data-driven, and persistent inflation has driven prices down just 42 basis points this year, with a 60% chance of a cut in September, according to CME’s FedWatch tool. .
Higher-than-expected inflation figures will likely offset rate cuts for the rest of the year.
“Today’s CPI readings and tomorrow’s CPI readings will tell us whether the US has taken further steps in reducing inflation, or whether prices remain too tight for the Federal Reserve to cut them,” ING analysts said in a note.
“The latter seems more likely, as well as a consensus call, which could leave currency markets without much of a sense of direction and volatility still subdued.”
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Sterling falls after weak employment data
In Europe, the index fell 0.3% to 1.2523 after the latest UK employment data showed the country’s employment rate rising to its highest level in almost a year.
UK unemployment rose to 4.3% in the three months to March – the highest level since May to July last year and up from 4.2% in the previous three months.
This would strengthen the idea of a rate cut in the near future, but the problem for the Bank of England was complicated by news that wage growth in the country remains strong.
excluding bonuses, remained at 6%, continuing to outpace inflation. It was expected to slow to 5.9% between January and March.
traded 0.1% lower at 1.0778 after the latest data showed inflation in the euro zone’s largest economy looked under control.
Germany’s consumer price index rose 2.2% year on year in April, only slightly above the European Central Bank’s medium-term target of 2%.
The ECB is expected to start cutting interest rates from record highs in June, and markets now see up to three rate cuts this year or two after June, most likely in September and December.
Yen still under intervention watch
In Asia, the pair rose 0.2% to 156.44, with the pair recouping most of the losses incurred earlier in May when the government was seen twice intervening in currency markets.
While traders viewed the 160 mark as a new line for government intervention, USDJPY’s rapid rise despite the threat of intervention has raised fears that the government may intervene sooner.
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rose 0.1% to 7.2377, with the yuan still weak as a prolonged slump in the property market became a key pressure point on the Chinese economy despite Beijing’s repeated attempts to support the sector.