The U.S. dollar eased marginally on Tuesday but stayed near a three-week peak as markets awaited key inflation figures that could shape the Federal Reserve’s next moves on interest rates.
At 04:30 ET (08:30 GMT), the Dollar Index—which tracks the dollar against six major currencies—fell 0.1% to 97.63, just below its highest point since late June.
Dollar Pulls Back Ahead of CPI Report
The traditionally safe-haven dollar slipped amid improved market sentiment, buoyed by China’s better-than-expected GDP growth for the second quarter and Nvidia’s announcement that it expects to resume chip exports to China soon, suggesting easing tensions between the two countries.
Despite these positives, trading volumes were light as investors awaited the U.S. consumer price index (CPI) data. Economists forecast a 0.3% monthly increase in June’s inflation, up from 0.1% in May, and an annual rise to 2.6% from 2.4%.
Market participants hope the Fed will restart rate cuts, but policymakers remain cautious, noting that tariffs could keep inflation elevated.
ING analysts said, “The dollar’s movement will likely hinge on whether inflation data comes above or below the expected 0.3% monthly gain.” They added that the market still prices in some Fed easing by September, but this may be revised.
Euro Advances Ahead of German Economic Sentiment Data
In Europe, the euro strengthened 0.2% to 1.1691 versus the dollar, recovering from Monday’s dip to near three-week lows.
While Spain’s inflation for June was slightly higher than forecast, attention turned to Germany’s ZEW economic sentiment index for July, with investors looking for signs of economic strength in Europe’s largest economy.
ING commented that the data should be “positive, reflecting optimism around Germany’s ongoing fiscal expansion.”
The ECB has cut rates eight times in its current easing cycle, most recently in June, lowering the deposit rate to 2%. ECB council member Fabio Panetta indicated last week that further rate cuts could be on the horizon if trade tensions and geopolitical risks push disinflation further.
Pound Recovers Slightly Following UK Economic Contraction
The British pound gained 0.2% to 1.3447 against the dollar, rebounding after the UK economy contracted for a second month in May.
ING noted that upcoming UK labor market data will be key, saying, “If May’s job losses of 109,000 are confirmed and June also sees declines, the pound and UK rates could weaken further.”
Yuan Steady Amid Mixed Economic Reports
The Chinese yuan saw minimal change at 7.1739 per dollar despite a slew of economic data. China’s Q2 GDP grew 5.2% year-on-year, slightly surpassing forecasts, aided by strong exports and government stimulus measures.
June’s industrial output beat expectations, while retail sales were weaker than forecast, and unemployment remained steady at 5%.
Elsewhere, USD/JPY traded near 147.71, and AUD/USD climbed 0.3% to 0.6569.
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