Investing.com – The U.S. dollar rose slightly in early European trade on Friday, recovering from losses in the previous session ahead of key inflation data that could weigh on future interest rate expectations.
At 04:30 ET (0830 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 104.735, after falling to 104.63 overnight.
Dollar falls after weak GDP data
The dollar fell on Thursday after official data showed annualized growth of 1.3% in the first quarter, compared with a preliminary estimate of 1.6%.
This sign of slowing growth has led markets to price the likelihood of rate cuts starting in September at 55%, up from 51% the day before, according to data from CME Group’s FedWatch Tool (NASDAQ:).
However, inflation remains a concern for the Federal Reserve, and many officials are cautioning against expectations of interest rate cuts soon.
Dallas Federal Reserve Bank President Lori Logan said Thursday that while she believes inflation is still close to the Fed’s 2% target, it is too early to consider cutting interest rates.
With that in mind, traders are awaiting confirmation from Friday’s data, the Fed’s preferred inflation gauge, for confirmation that inflation remains resilient.
Euro falls after weak retail sales in Germany
In Europe, trading was 0.1% lower at 1.0823 after falling more than expected in April, falling 1.2% from the previous month.
It illustrates the difficulties facing consumers in the eurozone’s largest economy as it prepares to cut interest rates next week.
However, there is uncertainty over what the central bank will decide next on interest rates, putting May’s euro zone inflation report later in the session in focus.
The index is expected to rise 2.5% year-on-year, up from 2.4% in the previous month, but there is room for growth given stronger-than-expected April German inflation data on Wednesday.
fell 0.2% to 1.2712, falling from 1.2801 on Tuesday for the first time since March 21.
Japan’s consumer price index remains weak
In Asia, trading rose 0.3% to 157.23, recovering from a sharp fall in overnight trade.
Data from Tokyo showed inflation in the Japanese capital rose as expected in May, although it was still relatively weak. Mild inflation bodes bad news for the yen as it gives the Bank of Japan less incentive to raise interest rates.
was trading 0.2% higher at 7.2438, returning to six-month highs hit earlier this week.
Purchasing Managers’ Index data showed China’s business activity worsened in May after improving slightly over the past two months. unexpectedly fell back into contraction territory, while the non-manufacturing PMI rose more slowly than expected.
While the data presented new headwinds for the Chinese economy, it also raised bets that Beijing will increase stimulus spending to support growth. But the spending, which will likely lead to looser monetary conditions, likely doesn’t bode well for the yuan.