Written by Karen Brettell
NEW YORK (Reuters) – The dollar hit a four-week high on Tuesday ahead of an upcoming inflation report that is likely to influence the timing of the Federal Reserve's first interest rate cut, while the euro came under pressure due to political uncertainty. In the region.
Stronger-than-expected job gains and higher wage inflation in Friday's May jobs report raised concerns that inflation may remain flat while growth remains strong, making the US central bank less likely to cut interest rates in the coming months.
Traders have trimmed their expectations for the first rate cut in September, which now has roughly 50-50 odds.
Consumer Price Index (CPI) data is scheduled to be released on Wednesday, before the Federal Reserve concludes its two-day meeting.
“I think Fed members will take that (CPI data) into account,” said Noel Dixon, the Fed's chief strategist. State Street (NYSE:) Global Markets in Boston.
The US central bank is expected to leave interest rates unchanged, but Fed policymakers will update their forecasts – what is widely known as a “dot chart.”
If inflation remains in line with expectations, Dixon expects the points to show an expectation of two 25 basis point cuts this year, down from the average forecast of three cuts in the March estimates.
“You may get some short-term weakness in the dollar, especially given the big move we made in the euro against the dollar,” Dixon said.
However, “once the situation calms down, I think we will return to a story of relative monetary policy divergence and I think that will continue to support the dollar through the rest of the year.”
Economists polled by Reuters expect headline consumer price inflation to decline to 0.1% from 0.3% last month, and core price pressures to remain steady at 0.3% compared to last month.
The euro rose in recent trading by 0.29% to 105.44, the highest level since May 14. The euro fell 0.41% to $1.0719, the weakest since May 2.
The single currency fell amid concerns that gains made by eurosceptics in the European elections and the call for early French elections may complicate the European Union's attempts to deepen integration.
Marine Le Pen's National Rally party is widely expected to emerge as the strongest force in the French elections, although it may not achieve an absolute majority.
Meanwhile, the Bank of Japan will conclude its two-day meeting on Friday, which economists expect will lead to the central bank starting to reduce its monthly bond purchases.
The dollar rose in recent trading by 0.08 percent to 157.14 yen.
The currency's fall to a 34-year low of 160.245 to the dollar at the end of April sparked several rounds of Japanese official intervention worth 9.79 trillion yen.
In cryptocurrencies, Bitcoin fell by 3.89% to $66,910.