Investing.com – The US dollar was flat on Tuesday, largely flat ahead of key inflation data likely to weigh on interest rate expectations.
At 03:30 EST (08:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 105.250, in range-bound trading.
Dollar calm ahead of key inflation data
The dollar, like the foreign exchange market as a whole, saw quiet trading at the beginning of this week, as traders awaited the release of the latest US inflation data, which will likely dictate near-term sentiment regarding potential interest rate cuts.
The April release is due later Tuesday, ahead of Wednesday's crucial CPI report that is expected to show a 0.3% month-on-month rise in April, lower than the 0.4% growth in the previous month.
The Fed has made clear that any potential interest rate cuts are data dependent, and flat inflation has priced in just 42 basis points of easing this year, with a 60% chance of a cut in September, according to the CME FedWatch tool.
A hotter-than-expected inflation reading will likely lead to interest rate cuts for the rest of the year.
“Today's PPI and tomorrow's CPI numbers will tell us whether the US has taken further steps in the fight against inflation, or whether prices are still too steep for the Reserve Bank to take action,” analysts at ING said in a note. The Fed reduced it.
“The latter option appears to be the most likely, as is a call for consensus as well – which could leave FX markets without much sense of direction and volatility remaining low.”
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Sterling falls after weak jobs data
In Europe, it fell 0.3% to 1.2523, after the latest UK jobs data showed that the country rose to its highest level in almost a year.
The UK unemployment rate rose to 4.3% in the three months to March – the highest level since May-July last year, and up from 4.2% in the previous three months.
This would reinforce the idea of lower interest rates in the near future, but complicating the issue for the Bank of England is the news that wage growth in the country remains strong.
Excluding bonuses, the rate remained at 6%, continuing to outpace inflation. It was expected to slow to 5.9% between January and March.
The euro fell 0.1% to 1.0778, after the latest showed that inflation appears to be under control in the euro zone's largest economy.
Germany's CPI rose 2.2% year-on-year in April, only marginally above the European Central Bank's medium-term target of 2%.
The European Central Bank is widely expected to start cutting interest rates from a record high in June, and markets are now seeing up to three rate cuts this year, or two after June, most likely in September. And December.
The yen remains under intervention watch
In Asia, it rose 0.2% to 156.44, as the pair regained the bulk of its losses incurred earlier in May, when the government was seen intervening in currency markets on two separate occasions.
While traders saw the 160 level as the new line for government intervention, the rapid rise of USDJPY, despite the threat of intervention, raised concerns that the government might intervene sooner.
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It rose 0.1 percent to 7.2377, while the yuan remains weak as the prolonged decline in the real estate market has been a major pressure point on the Chinese economy, despite repeated efforts from Beijing to support the sector.