Investing.com – The US dollar fell on Tuesday, retreating from a one-month high, as yields eased ahead of key US inflation data and the Federal Reserve's latest meeting.
At 04:15 EDT (08:15 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 104.795, after hitting 105.39 on Monday for the first time since May 14. .
The dollar declines ahead of the CPI and Federal Reserve meeting
The dollar was supported by a stronger-than-expected performance on Friday, supported by higher Treasury yields as traders trimmed their bets on Federal interest rate cuts this year.
However, yields fell on Tuesday, sending the dollar lower, as traders opted for a more cautious stance ahead of crucial US consumer price data and new interest rate forecasts on Wednesday.
May's growth rate is expected to rise just 0.1% during the month, a 3.4% annual rise, which is still well above the Fed's medium-term target of 2%.
Traders continue to price in some monetary easing this year, although the September cut is now largely seen as a 50:50 ratio.
This inflation data comes just after the Federal Reserve concluded its latest two-day policy-setting meeting, with no change in interest rates practically a certainty.
Traders will be looking to see if Fed officials will change their forecast for the number of interest rate cuts this year, a move seen as likely given they called for three cuts in their last forecast.
“We note that the dollar finished lower on the day following four consecutive FOMC meetings – largely on the back of Chairman Jerome Powell's dovish rhetoric at the press conference,” analysts at ING said in a note.
“We cannot rule out this happening again given that market pricing for this year's Fed easing cycle remains on the low side.”
The euro stabilizes after the shock of the French elections
It traded largely flat at 1.0761, after falling to 1.0733 on Monday, a level last seen on May 9, following the shock news that French President Emmanuel Macron called a snap election following gains made by the far right in the European Parliament elections.
“The Macron government was already struggling with fiscal consolidation, and the worry now is that any RNC government will take a Trump-style approach to fiscal consolidation – trying to grow its way out of the problem,” analysts at ING said.
“EUR/USD will have difficulty rising this month. We expect it to continue trading around the 1.07/08 area, with downside risks.”
It fell by 0.1% to 1.2719, after the release of labor data that showed a decline in employment in the United Kingdom.
The proportion rose to 4.4% in April, from 4.3% the previous month, while it rose to more than 50,000 in May, much more than the 10,000 expected.
This may provide the Bank of England with an incentive to start cutting interest rates later this month, but they rose 5.9% in April, more than the expected 5.7%, suggesting that wage inflation remains an issue.
“Given the Bank of England's lack of opportunities to engage with the market due to the July 4 election, we will have to wait for the Bank of England's interest rate meeting on June 20 for key updates here,” ING said.
The Bank of Japan reduces its bond purchases?
In Asia, trading rose 0.2% to 157.32, ahead of Friday's meeting.
Investors expect a decline in the central bank's monthly purchases of government bonds, perhaps as early as this meeting.
The index rose 0.1% to 7.2542, remaining close to six-month highs as traders worried about an uneven economic recovery.