The US dollar edged higher on Monday, in quiet trading as traders looked ahead to key inflation data later in the week for clues on the Federal Reserve’s future monetary policy decisions.
At 04:30 ET (09:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 103.017, steady after last week’s wild swings.
Dollar rises ahead of CPI release
The dollar got a boost late last week after stronger-than-expected weekly data prompted traders to scale back bets on a Federal Reserve interest rate cut this year.
The US dollar struggled at the start of the week, due to concerns about the US economy and the hawkish stance of the Bank of Japan.
Fed funds futures are pointing to a 49% chance of a half-point rate cut in September, after rising to 100% at one point last week.
This uncertainty makes markets highly vulnerable to data and events, with the US consumer price index on Wednesday expected to be particularly large.
July data is expected to show that inflation continued to approach the Fed’s 2% annual target, with annual core inflation forecast to ease slightly to 3.2%, the lowest level since April 2021.
“Will July PPI (Tuesday) and CPI (Wednesday) continue to provide the Fed with confidence that inflation is under control and allow the easing cycle to begin in September? Most analysts believe the answer to this question is yes,” ING analysts said in a note.
Sterling awaits inflation data
In Europe, the pound rose to 1.0920, not far from its peak of 1.1009 last week, the pair’s highest level since January 2.
The pair saw quiet trading at the start of the week, with the Eurozone data calendar quiet this week and not many speakers from the European Central Bank.
This leaves the market to focus on the first revision of Eurozone Q2 GDP data.
The central bank began cutting interest rates in June, and many expect policymakers to agree to another cut in September.
The pound fell against the US dollar to 1.2759 at the start of a busy UK economic data calendar this week, as investors look for clues on whether the Bank of England will continue its interest rate cutting cycle next month.
The Bank of England cut interest rates for the first time since 2020 earlier this month, and markets are now pricing in around 33% chances of another quarter-point cut at its September meeting.
Wage growth data is due on Tuesday, followed the following day by closely watched figures for signs of continued price pressures.
The yen is falling
In Asia, the index rose 0.4% to 147.25, retreating further from the strong rise it achieved during the past month.
Expectations of economic readings and central bank meetings across Asia kept traders on edge, while a Japanese holiday drained trading volumes.
The pound rose 0.2% to 7.1811, with the yuan slowly retreating.
Although the yuan’s big losses were due to continued support from the People’s Bank of China, doubts about the Chinese economy have mostly kept traders shorting the currency.
This week, attention is focused on China and data, for more clues about the country’s biggest economic drivers.
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