Investing.com – The US dollar rose slightly in early European trade on Friday, rebounding from the previous session's losses ahead of key inflation data, which could push future interest rate expectations.
At 04:30 EST (08:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.735, after falling to 104.63 overnight.
The dollar fell after weak GDP data
The dollar fell on Thursday after official data showed growth at an annual rate of 1.3% in the first quarter, down from a prior estimate of 1.6%.
This sign of slowing growth has markets pricing in a 55% chance of interest rate cuts starting in September, up from 51% a day earlier, according to CME Group's (NASDAQ:) FedWatch tool.
However, inflation remains a concern for the Federal Reserve, with many officials warning against expectations of early interest rate cuts.
Dallas Fed President Lori Logan said Thursday that although she believes inflation is still heading toward the Fed's 2% target, it is too early to consider cutting interest rates.
With this in mind, traders are awaiting confirmation from Friday's data, the Fed's preferred measure of inflation, to confirm that inflation remains steady.
Euro declines after weak German retail sales
In Europe, trading fell 0.1% to 1.0823 after falling more than expected in April, falling 1.2% compared to the previous month.
This underscores the difficulties facing consumers in the euro zone's largest economy, as they prepare for interest rate cuts next week.
However, there is uncertainty about what the central bank will decide next regarding interest rates, putting the Eurozone inflation report for May later in the session firmly in focus.
Inflation is expected to rise by 2.5% year-on-year, up from 2.4% in the previous month, but there is upside potential given a stronger-than-expected April inflation reading in Germany on Wednesday.
It fell 0.2% to 1.2712, down from 1.2801 on Tuesday for the first time since March 21.
Japan's CPI remains weak
In Asia, trading rose 0.3% to 157.23, rebounding after a sharp decline in overnight trading.
Data from Tokyo showed that inflation in the Japanese capital rose as expected in May, although it remains relatively weak. Weak inflation bodes poorly for the yen, because it gives the Bank of Japan less impetus to start raising interest rates.
It traded 0.2% higher at 7.2438, retreating towards six-month highs hit earlier this week.
PMI data showed that Chinese business activity deteriorated in May after some improvement over the past two months. It unexpectedly fell into contraction territory, while the non-manufacturing PMI grew at a slower pace than expected.
While the readings provided renewed headwinds for the Chinese economy, they also fueled bets on increased stimulus spending from Beijing to support growth. But the aforementioned spending, which would likely entail looser monetary conditions, would likely bode poorly for the yuan.
