The U.S. dollar dipped slightly Tuesday as investors awaited the July consumer price index (CPI) release, a key indicator expected to influence the Federal Reserve’s next moves on interest rates.
By early morning trading at 04:15 ET (08:15 GMT), the Dollar Index — tracking the greenback against a basket of six major currencies — eased 0.1% to 98.317, following a 0.5% rally in the prior two sessions.
Market participants focused intently on the upcoming inflation figures, looking for clues on whether the Fed might ease monetary policy soon. A moderate inflation reading could reinforce expectations of a rate cut next month, but signs that tariffs imposed by U.S. President Donald Trump are stoking price pressures could keep the Fed cautious.
The headline CPI is forecast to rise slightly from 2.7% in June to 2.8%, still above the Fed’s 2% inflation target.
“Despite some repositioning ahead of the data, a hotter-than-expected inflation figure should provide support for the dollar, as markets could reduce bets on a September Fed rate cut to below 20 basis points,” said ING analysts.
They added, “Labor market figures remain more influential than inflation data given the view that tariff-driven price shocks are temporary and recent revisions to payroll numbers.”
In Europe, the euro gained modestly to 1.1618 against the dollar ahead of Germany’s ZEW economic sentiment report for August, which could offer insight into the eurozone’s largest economy.
The euro’s performance will also be influenced by the upcoming summit on Friday between U.S. President Donald Trump and Russian President Vladimir Putin, focused on potential peace talks regarding Ukraine.
“We expect today’s U.S. CPI to push EUR/USD below 1.16, with risks leaning toward testing support near 1.150 if Friday’s Putin-Trump meeting yields limited results,” ING said.
The British pound advanced slightly, with GBP/USD up 0.1% to 1.3451 following UK data showing unemployment steady at 4.7% for the quarter ending June, the highest since mid-2021. Annual wage growth excluding bonuses remained strong at 5.0%.
“Though the UK labor market is softer than earlier this year and weaker than other major economies, there’s no clear indication yet that the Bank of England will speed up rate cuts,” ING added.
On the yuan, USD/CNY ticked up to 7.1897, holding steady after the U.S. and China agreed to extend their trade truce by 90 days, postponing the threat of new tariffs.
The extension helped ease worries of escalating trade tensions between the world’s two largest economies and raised hopes for a more permanent deal.
Elsewhere, USD/JPY gained 0.1% to 148.33, while AUD/USD fell 0.2% to 0.6503 following the Reserve Bank of Australia’s expected 25 basis point rate cut to 3.60%.
This move marks Australia’s third rate reduction this year, continuing the easing trend started in the first quarter.
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