Investing.com – The U.S. dollar showed resilience in early European trade on Friday, holding on to most of its overnight gains following the release of long-awaited U.S. inflation data, while the euro showed some strength.
At 04:00 ET (0900 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading little changed at 104.107 after a volatile overnight session.
US dollar is stable
The Federal Reserve’s preferred inflation index fell in January but remained well above the central bank’s annual inflation target, according to data released Thursday.
This followed a series of strong US economic indicators that pointed to persistent price pressures, leading markets to price in the likelihood of a rate cut as soon as this month.
June is now seen as the likely starting point for the Fed’s rate cut cycle, with traders expecting around 75 bps of easing. this year.
“The idea of robust data on inflation and economic activity in the US is now fully internalized,” ING analysts said. “Investors are pleased with the three 25bp cuts planned for December as there is simply not enough data now to move to a more accommodative approach. Likewise, a rate cut before June seems unlikely. All of this leads to a strong dollar.”
Euro rises ahead of eurozone consumer price index
In Europe, trading rose 0.1% to 1.0813 ahead of the release of February data, which is expected to show another slowdown in inflation in the region.
Data released Thursday showed consumer prices fell more slowly than expected in France but faster than expected in Germany. Economists expect the annual rate to be 2.5% in February, down from 2.8% in January.
“A deviation from expectations could trigger short-term fluctuations in eurozone and euro rates, but should not really have much impact on the narrative that Christine Lagarde and the Governing Council look set to repeat next week,” ING added.
The meeting will take place next week and while no policy changes are expected, the bank could hint at rate cuts later this year.
traded 0.1% higher at 1.2635 after mortgage lender data showed UK house prices rose year-on-year in February for the first time in more than a year.
House prices were 1.2% higher than in February 2023, the first annual increase since January last year, according to Nationwide.
Inflation in the UK is falling but remains higher than in Europe and the US, suggesting that the Bank of England will be relatively late in moving to cut rates.
Yuan hurt by weak China PMI data
In Asia, the yuan traded 0.2% higher at 7.1989, with the yuan weakening after official PMI data showed China contracted for a fifth straight month in February.
The weak performance largely offset data showing some improvement in the index, although the increase was largely due to higher consumer spending during the Lunar New Year, a trend that could fade in the coming months.
traded 0.5% higher at 150.66, with the yen giving up all of Thursday’s gains to trade above the 150 level again as the prospect of higher, longer-term U.S. rates largely overshadowed any early rate hikes by the Bank of Japan.