By Ray Wee
SINGAPORE (Reuters) – The dollar fell on Tuesday on a slight rise in risk appetite, but remained in narrow ranges against peers ahead of key inflation data from major economies this week that may guide global interest rate expectations.
The euro rose 0.16 percent to $1.0877 despite some cautious statements from European Central Bank policymakers on Monday and data showing German business sentiment stagnated in May.
German inflation data due on Wednesday and the broader euro zone reading on Friday will be watched for confirmation of the ECB's expected interest rate cut next week and for clues on how quickly the central bank can come in for subsequent easing.
“The ECB is positioning itself to cut interest rates next week, but what matters next is what happens next, and the lack of guidance from ECB spokesmen makes that sense,” said Rodrigo Catril, chief FX strategist at National Australia Bank (OTC).
“Obviously the inflation dynamics will determine the direction in terms of what to expect.”
Both the British pound and the New Zealand dollar rose to their highest levels in more than two months. They finally bought $1.2778 and $0.6161 respectively.
At the bottom, the stock rose 0.2% to $0.6668. The country's monthly CPI data is also scheduled to be released on Wednesday.
However, all this data will be a sideshow to the markets' main focus on Friday when the US core Personal Consumption Expenditures (PCE) price index report – the Fed's preferred measure of inflation – is released. It is expected to remain steady on a monthly basis.
US interest rate expectations have been the dominant driver of currency movements over the past few years, and recent data from the world's largest economy has been volatile, weakening policymakers' confidence in the pace and size of interest rate cuts expected this year.
“The market is well priced in for a moderate number, and that needs to be achieved… for the current Fed cut expectations for this year to continue,” NAB's Cattrell said.
“We believe any surprise number on the upside will provide a major reaction in terms of higher US bond yields and a stronger dollar.”
Against a basket of currencies, the dollar fell 0.12% to 104.43.
Elsewhere, the yen fell near the 157 to the dollar level and recently settled at 156.67 to the dollar.
The Bank of Japan's (BOJ) three key measures of core inflation all fell below 2% in April for the first time since August 2022, data showed on Tuesday, adding to uncertainty about the timing of the next interest rate hike.
This comes ahead of the release of inflation data in Tokyo on Friday, a leading indicator of nationwide numbers.
Bank of Japan Governor Kazuo Ueda said Monday that the central bank will proceed cautiously with inflation targeting frameworks, noting that some challenges are “uniquely difficult” for Japan after years of ultra-loose monetary policy.
In cryptocurrencies, bitcoin fell 2.5% to $67,780, while ether fell more than 1% to $3,845.50.
