The U.S. dollar rose in narrow trading ranges on Tuesday, as traders awaited the release of the July producer price index, the first double-digit inflation bill this week, for clues on the Federal Reserve’s future monetary policy decisions.
At 05:10 ET (09:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 103.072, extending its sluggish performance overnight.
Dollar awaits Producer Price Index
The consumer price index, which measures changes in producer prices, is expected to rise 0.2% on a monthly basis in July, for an annual increase of 2.3%, down from 2.6% in the previous month.
The figure, which excludes the volatile food and energy components, is also expected to rise 0.2% on a monthly basis, down from 0.4% in June, for a 2.7% annual increase, down from 3.0%.
“We expect a 0.2% m/m growth in both leading and core indices to ease market jitters over a round of CPI/PCE rises that would hit risk sentiment hard as global equity indices continue to recover from recent losses,” ING analysts said in a note.
The most widely watched data is due on Wednesday, and is also expected to show inflation slowing slightly in July.
Investors will be analyzing the data set to try to decide whether the Fed will go for a 50 basis point or 25 basis point cut at its September meeting — and traders are currently evenly split between the two, according to the CME FedWatch tool.
At the end of July, the central bank kept its benchmark interest rate in the same range of 5.25%-5.50% that it has held for more than a year, but indicated that a rate cut could come in September if inflation continues to slow.
Pound rises after wage growth
In Europe, the pound rose 0.3% to 1.2801 after data showed the Japanese yen, excluding bonuses, rose 5.4% in June.
While this is still down from the revised 5.8% in the previous month, it is still higher than the expected 4.6% growth and suggests that the Bank of England will struggle to fully rein in inflation.
In addition, the UK grocery price inflation rate rose this month for the first time since March 2023, with market research firm Kantar reporting that annual grocery price inflation was 1.8% in the four weeks to August 4, compared with 1.6% in the previous four-week period.
The euro fell 0.1% to 1.0922, with the euro slightly lower after the Spanish euro fell 0.5% in July on a monthly basis, a 2.8% annual rise.
The central bank began cutting interest rates in June, and many expect policymakers to agree to another cut in September, especially as signs of dissipating inflation emerge.
The yen is falling
In Asia, the dollar rose 0.4 percent to 147.81 as the yen weakened after a Reuters report that Japan’s parliament plans to hold a special session on Aug. 23 to discuss the central bank’s decision last month to raise interest rates.
The pair fell to the 141 level last week amid increased safe-haven demand and a decline in the carry trade, but questions remain about how much room the Bank of Japan has to raise interest rates again this year.
The US dollar index fell 0.1% to 7.1704, with data due later this week.
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