By Karen Brettell
NEW YORK (Reuters) – The dollar hit a four-week high on Tuesday, ahead of a highly anticipated inflation report likely to influence the timing of the U.S. Federal Reserve’s first interest rate cut, while the euro was pressured by political uncertainty in the European Union.
Stronger-than-expected job growth and higher wage inflation in Friday’s US jobs report for May raised concerns that inflation could remain persistent while growth remains strong, making it less likely that the US central bank will cut interest rates in coming months .
Traders have lowered expectations of the first US rate cut in September, which now has around 50-50 odds.
The U.S. Department of Labor will release its consumer price index (CPI) for May at 8:30 a.m. EDT (1830 GMT) on Wednesday, just hours before the Fed concludes its final two-day policy meeting.
“I think Fed members will take that (CPI data) into account,” said Noel Dixon, senior macro strategist at State Street (NYSE:) Global Markets.
The US central bank is expected to leave interest rates unchanged, but Fed policymakers will adjust economic projections, commonly known as the ‘dot plot’.
If inflation remains in line with expectations, Dixon expects points to see two 25 basis point rate cuts this year, down from the average projection of three cuts from March.
“You could see some near-term weakness in the dollar, especially given the big move we’ve made in the euro/dollar,” Dixon said.
However, “once the dust settles, I think we’ll get back to the story of relative divergence in monetary policy and… that will continue to support the dollar for the rest of the year.”
Economists polled by Reuters expect headline consumer price inflation to decline to 0.1% from 0.3% last month, and core price pressures to remain stable at 0.3% from last month.
The euro was last up 0.1% at 105.24, but rose to 105.46, its strongest level since May 14. The euro fell 0.2% to $1.0742, having previously reached $1.07195, its lowest level since May 2.
The single currency has also fallen over concerns that Eurosceptics’ gains in the European elections and the calling of snap French elections could complicate the EU’s efforts to deepen integration.
Marine Le Pen’s National Rally was expected to win the upcoming French elections on Monday, but would fall short of an outright majority.
Meanwhile, the Bank of Japan will conclude its two-day meeting on Friday. Economists expect this will lead to the central bank scaling back its monthly bond purchases.
The dollar was little changed against the Japanese currency that day at 157.03 yen.
The yen’s plunge to a 34-year low of 160.245 per dollar in late April led to several rounds of official Japanese intervention amounting to 9.79 trillion yen.
In cryptocurrencies, bitcoin fell 3.53% to $67,200.27.
