Investing.com – The US dollar fell marginally on Monday, consolidating after recent swings, as focus shifted squarely to upcoming US inflation data for more clues on interest rates.
At 04:00 ET (09:00 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 straight weeks of decline.
The dollar awaits important inflation data
The dollar saw wild swings last week as mixed economic developments in the US raised questions about exactly when the central bank will start cutting interest rates this year.
However, this volatility is likely to subside 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 on potential rate cuts.
Analysts expect Wednesday’s crucial report to show underlying inflation rising 3.6% annually, which would be the smallest increase in more than three years.
But if inflation turns out to be higher than expected, interest rate cuts for the rest of the year would likely be offset, likely boosting the dollar.
“After April’s dovish FOMC meeting and dovish NFP took momentum out of the dollar’s uptrend, the question is whether price data can actively contribute to the dollar’s downtrend,” ING analysts said in a note.
Investors will get new insights into the health of the US consumer this week with April data on Wednesday, plus earnings results from major retailers Walmart (NYSE:) and DIY store (NYSE:).
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The pound sterling is benefiting from strong growth figures
In Europe, the economy rose 0.1% to 1.2531, retaining some strength after data last week showed the UK economy grew by the most in almost three years in the first quarter of 2024.
“The British pound continues to witness a stop-start sell-off, with Friday’s release of a stronger-than-expected first quarter GDP figure for 2024 providing some support to the pound,” ING said.
“We doubt that this better-than-expected outcome will have too much impact on the Bank of England’s thinking – apart from perhaps allowing some room for patience on policy. And we remain downwardly focused on sterling in the coming quarters.”
traded 0.1% higher at 1.0784, although this firmer tone could be short-lived with the European Central Bank all but promising a rate cut on June 6.
Eurozone inflation remains on track to fall to 2% next year, so policymakers are likely to start cutting interest rates from a record high in June, the report from their April meeting showed on Friday.
Markets now see up to three rate cuts this year, or two after June, most likely in September and December, when the ECB also releases new economic projections.
The yuan falls to a two-year low
In Asia, yields rose 0.1% to 7.2339, hitting a two-week high, after data released over the weekend provided mixed signals on Chinese inflation.
Inflation rose more than expected in April as continued stimulus from Beijing helped boost demand. But inflation contracted for the 19th month in a row as Chinese business activity lagged.
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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, hovering just below the 156 level.
The focus remained on further potential government intervention to support the currency, following at least two interventions earlier in May. The government was seen stepping in to lower the USD/JPY pair from 34-year highs above 160.
