Investing.com – The US dollar fell in early European trade on Tuesday amid a slight rise in risk sentiment, but traded in narrow ranges ahead of key inflation data.
At 04:25 EDT (08:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 104.410, giving up some of the strong gains it made last week as traders returned. From holidays in the United Kingdom and the United States.
The dollar declines before the release of core personal consumption expenditures data
The dollar fell slightly on Tuesday, but trading ranges remain tight ahead of Friday's US report – the Federal Reserve's preferred measure of inflation.
US interest rate expectations have been the dominant driver of currency movements recently, and traders will be looking for more guidance on the pace and size of interest rate cuts expected this year.
The core personal consumption expenditures (PCE) index is expected to remain largely flat month-on-month, and comes as markets succumb to the narrative of higher interest rates for a longer period following last week's Fed meeting minutes, along with dovish statements from a number of policymakers.
Investors will also have the opportunity to hear from several Fed speakers during the week, including the Governor and President of the Cleveland Fed, the Governor and President of the New York Fed and the President of the Atlanta Fed.
The economic calendar also includes revised first-quarter data on Thursday and Federal Reserve data on Wednesday.
The euro rises ahead of the release of the consumer price index
In Europe, its trading rose by 0.2% to 1.0872, ahead of the release of key consumer inflation data in the euro zone, scheduled for the end of the week.
The bank is preparing to cut interest rates next week, with policymakers largely confirming this with downbeat comments on Monday.
The European Central Bank has plenty of room to cut interest rates, and current market expectations for longer-term easing are reasonable, Francois Villeroy de Galhau, a policymaker at the European Central Bank, said in a newspaper interview on Monday, describing next month's cut as a “completed agreement.”
There is uncertainty as to what will happen next, and will be watched on Friday for guidance.
Economists expect euro zone inflation to rise by 2.5% in May year-on-year, from 2.4% in April, while core inflation is expected to remain steady at 2.7%.
The euro rose to 1.2770, with the UK economic calendar calming down as the election campaign gets underway.
“There will be some interest in any election pledges for Labor leader Keir Starmer (who is leading in the polls by a significant margin). “He kicked off the campaign with a speech yesterday, but it had little resonance in the market,” analysts at ING said in a note.
The yen remains under pressure
In Asia, the euro rose to 156.89, remaining close to recent highs as apparent intervention in the currency market by the government, at the beginning of May, provided only fleeting relief to the yen.
It is scheduled for release on Friday and is likely to take into account the Bank of Japan's interest rate expectations.
The dollar traded 0.1% higher at 7.2471, with the pair remaining close to six-month highs, amid growing doubts about China's economic recovery.
Key Chinese data is also available this week.