Home ForexArticles The dollar just went down; Stabilizing after key inflation data By Investing.com

The dollar just went down; Stabilizing after key inflation data By Investing.com

by SuperiorInvest

Investing.com – The U.S. dollar fell slightly on Monday, consolidating after recent swings as attention turned squarely to upcoming U.S. inflation data for more clues on interest rates.

At 04:00 ET (0900 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading just 0.1% lower at 105.090, following a weekly gain last week after two consecutive weeks of falls.

The dollar awaits key inflation data

The dollar saw wild swings last week as mixed U.S. economic readings raised questions about when the central bank will begin cutting interest rates this year.

However, this volatility is likely to recede at the start of this new week as traders await the release of the latest US inflation data, which will likely dictate near-term sentiment regarding potential rate cuts.

Analysts expect Wednesday's crucial report to show core inflation rising 3.6% year-over-year, which would be the smallest increase in more than three years.

But a higher-than-expected inflation reading would likely rule out rate cuts for the rest of the year, which would likely boost the dollar.

“After the dovish FOMC meeting and weak April NFP absorbed the momentum of the dollar's rise, the question is whether price data can actively contribute to the dollar's decline,” ING analysts said in a note.

Investors will gain new insights into the health of the U.S. consumer this week with April data due Wednesday, plus earnings results from major retailers Walmart (NYSE 🙂 and House deposit (NYSE:).

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Sterling benefits from strong growth data

In Europe, it gained 0.1% to 1.2531, retaining some strength after data last week showed the British economy grew by the most in almost three years in the first quarter of 2024.

“Sterling continues to witness an on-again, off-again sell-off, where Friday's release of a better-than-expected Q1 2024 GDP figure managed to give some support to sterling,” ING added.

“We doubt this better-than-expected reading will have much impact on the Bank of England's thinking, beyond perhaps giving it some room for policy patience. And we maintain our bearish bias for sterling in the coming quarters.”

traded 0.1% higher at 1.0784, although this firmer tone could be short-lived as the European Central Bank all but promises a rate cut on June 6.

Eurozone inflation remains on track to fall back to 2% next year, so authorities will likely begin cutting interest rates from a record level in June, their April meeting report showed on Friday. .

Markets now expect up to three rate cuts this year, or two after June, most likely in September and December, when the ECB also publishes new economic projections.

Yuan falls to its lowest level in two years

In Asia, it rose 0.1% to 7.2339, hitting a two-week high after data released over the weekend offered mixed signals on Chinese inflation.

Inflation rose more than expected in April as persistent stimulus measures from Beijing helped boost demand. But inflation fell for the 19th straight month as Chinese business activity remained lagging.

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Traders were also wary of China after reports last week said the Biden administration was preparing more trade tariffs against the country, especially on China's electric vehicle sector. The move could reignite a trade war between the world's largest economies.

rose 0.1% to 155.87, sitting just below the 156 level.

The focus remained on any potential additional government intervention to support the currency, following at least two instances of intervention in early May. The government was seen intervening to push the USD/JPY pair down from 34-year highs above 160.

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