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Dollar edges higher ahead of key CPI release

Published 08/12/2024, 05:32 PM
© Reuters.

Investing.com - The U.S. dollar edged higher Monday, in calm trading with traders looking to the release of key inflation data later in the week for clues of future Federal Reserve monetary policy decisions.  

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.017, steadying after last week’s wild swings. 

Dollar edges higher ahead of CPI

The dollar received a boost late last week after stronger-than-expected weekly U.S. jobs data led traders to pare bets for Federal Reserve interest rate cuts this year.

The greenback had struggled at the start of the week, driven by worries over the U.S. economy and the Bank of Japan's hawkishness.

Fed fund futures imply a 49% chance of a half-point rate cut in September, after climbing as high as 100% at one point last week.

This uncertainty leaves markets highly vulnerable to data and events, with the U.S. consumer price index on Wednesday looming particularly large.

July CPI data is expected to show that that inflation continued to edge closer to the Fed’s 2% annual target, with forecasts tipping annual core inflation to fall a tick to 3.2%, the lowest since April 2021.

“Will July PPI data (Tuesday) and CPI data (Wednesday) continue to provide confidence to the Fed that inflation is under control and allow the easing cycle to start in September? Most think the answer to that question is yes,” said analysts at ING, in a note. 

Sterling awaits inflation data

In Europe, EUR/USD edged higher to 1.0920, not far removed from last week’s 1.1009 peak, the highest level for the pair since Jan. 2.

The pair has seen calm trading at the start of the week, with the eurozone data calendar very quiet this week and little in the way of European Central Bank speakers scheduled. 

This leaves the market to focus on the first revision to the second quarter eurozone GDP data.

The European Central Bank started cutting interest rates in June, and many expect the policymakers to agree to another reduction in September.

GBP/USD traded flat at 1.2759 at the start of a busy U.K. economic data calendar this week, as investors look for clues as to whether the Bank of England will continue its rate-cutting cycle next month.

The BoE cut rates for the first time since 2020 at the start of this month and markets are currently pricing in a roughly 33% chance of another quarter point cut at its September meeting.

Data on wage growth is due out on Tuesday, followed a day later by inflation figures, which will be closely watched for indications of lingering price pressures.

Yen drifts lower

In Asia, USD/JPY rose 0.4% to 147.25, pulling back further from a stellar rally over the past month. 

Anticipation of economic readings and central bank meetings from across Asia kept traders on edge, while a Japanese holiday drained volumes.

USD/CNY climbed 0.2% to 7.1811, with the yuan slowly retreating.

While major losses in the yuan have been stemmed by persistent support from the People’s Bank, skepticism over China’s economy kept traders mostly short on the currency.

Focus this week is on Chinese industrial production and retail sales data, for more cues on the country’s biggest economic engines. 

 

 

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