© Reuters. FILE PHOTO: US dollar banknotes are seen in this illustration taken on March 10, 2023. REUTERS/Dado Rovic/Illustration
Written by Harry Robertson and Ray Wei
LONDON/SINGAPORE (Reuters) – The dollar fell slightly on Tuesday as investors awaited US inflation data, while China’s yuan fell to a six-month low after the central bank cut its short-term lending rate to boost the economy.
The euro rose 0.42 percent to $1.08 on Tuesday, after touching its highest since May 23 earlier in the session at $1.081.
That helped push the currency pair, which measures the currency against six peers, down 0.3%, to 103.27.
US Consumer Price Inflation (CPI) data is due at 1230 GMT (8:30 AM ET) and could influence the Federal Reserve as it begins its two-day policy meeting and interest rate decision due on Wednesday.
Jane Foley, Rabobank’s head of foreign exchange strategy, said the dollar fell in part because the market was “priced in for a pause” from the Fed tomorrow.
The Fed raised its target rate range to 5% to 5.25% in May but traders believe there is a 77% chance the Fed will hold it steady this week. Traders widely expect a further 25 basis point rally in July, after Fed officials hinted at a so-called skip.
“What’s going to be interesting today is looking at this CPI, especially the core number, because there will be some fine-tuning (to market expectations) before the Fed meeting,” Foley said.
In Asia, the Chinese yuan fell to a six-month low after the central bank cut its short-term lending rate for the first time in 10 months, in an effort to restore market confidence and support a stalled post-pandemic recovery.
The bottom reached 7.168 for the dollar, which is the lowest level since last November, and it was traded in the latest trading at 7.151.
Its overseas counterpart weakened to a new six-month low of 7,178, before paring losses slightly.
The cut reflects “growing concerns among policymakers about the health of China’s recovery,” Julian Evans-Pritchard, head of China economics at advisory firm Capital Economics, said in a note to clients. “And broader easing is likely to follow.”
Sterling jumped on Tuesday after employment data came in much stronger than expected, with wages rising sharply, adding to concerns about inflation.
The pound rose 0.43% to $1.257 as traders bet that the Bank of England will be forced to raise interest rates more than previously expected. However, it remained below the one-month high of $1.26 hit on Monday.
Against the Japanese yen, the dollar fell very slightly to 139.5.
The Bank of Japan is scheduled to announce its monetary policy decision on Friday and is expected to maintain its ultra-hawkish stance and yield curve control settings.
The dollar rose more than 0.4 percent to its highest level since May 11 at $0.679, and was last at $0.678.