The US dollar was steady in early European trading on Friday ahead of key inflation data, while the euro rose and the Japanese yen fell slightly but remained on track for its strongest week in three months.
At 04:00 ET (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was largely unchanged at 104.127.
Dollar Looks to PCE Data
The dollar found some support from data showing the economy expanded at a faster-than-expected pace and inflation slowed in the second quarter.
The reading raised hopes that the U.S. economy is heading toward a soft landing, with growth remaining steady while inflation eases.
However, the dollar’s gains were limited, and the US macroeconomy is not the only driver in foreign exchange markets these days.
“The fallout from tech selling, US election positioning and carry trade unwinds have generated moves large enough in volume to overshadow US data,” analysts at ING said in a note.
However, the focus on Friday now turns to data due later in the session, which is expected to show inflation eased further in June, while maintaining expectations for a cut in September.
The euro is rising
In Europe, the euro rose slightly to 1.0845, after data showed that euro zone consumers stopped cutting their inflation expectations in June after four straight monthly declines.
The European Central Bank’s consumer expectations survey showed that the average consumer expects inflation to average 2.8% over the next 12 months, unchanged from May after a steady decline from 3.3% in January.
The European Central Bank cut interest rates in June and is widely expected to do so again in September, but policymakers would no doubt prefer to see those expectations continue to fall as monetary policy is eased.
GBP/USD is trading at 1.2870, up 0.2%, but well below a one-year high of 1.3044 hit last week.
The European Central Bank is due to meet next week, and while markets are expecting around 50 basis points of interest rate cuts this year, there is still considerable uncertainty about whether policymakers will agree to cut rates then or postpone them until September.
Yen eyes BOJ meeting next week
In Asia, the yen rose 0.2% to 154.25, with the yen’s recent advance somewhat halted by weak data, which showed inflation remained largely muted in July.
The weak inflation reading came just days before the central bank’s meeting, with analysts divided over whether the central bank will have enough room to raise interest rates by 10 basis points.
But the yen was on track to rise 2.5% for the week, its biggest weekly gain since late April and early May, after suspected intervention boosted the currency.
The Chinese yuan rose 0.3% to 7.2520 against the US dollar, with the yuan weakening after suspected Chinese government intervention sent the currency sharply higher against the dollar on Thursday.