Investing.com – The U.S. dollar edged lower on Monday, consolidating after recent fluctuations, as the focus turned directly to upcoming U.S. inflation data for more information on interest rates.
At 04:00 ET (0900 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading just 0.1% lower at 105.090, after a weekly gain last week following two straight weeks of declines. .
Dollar awaits key inflation data
The dollar saw wild swings last week as mixed U.S. economic indicators raised questions about when the central bank would start cutting interest rates this year.
However, this volatility is likely to subside early in the new week as traders await the release of the latest US inflation data, which is likely to shape near-term sentiment towards a potential rate cut.
Analysts expect Wednesday’s crucial report to show core inflation rose 3.6% year on year, the smallest increase in more than three years.
But higher-than-expected inflation figures are likely to offset rate cuts for the rest of the year, which is likely to support the dollar.
“After the peaceful FOMC meeting and soft April NFP took away the dollar’s upside momentum, the question is whether price data could actively push the dollar lower,” ING analysts said in a note.
Investors will get an update on the health of U.S. consumers this week with April data on Wednesday, as well as earnings results from major retailers Walmart (NYSE:) and Home Depot (New York Stock Exchange:).
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Sterling benefits from strong economic growth data
In Europe, it added 0.1% to 1.2531, maintaining some strength after data last week showed the UK economy grew the most in almost three years in the first quarter of 2024.
“Sterling continues to sell off, with Friday’s stronger-than-expected first-quarter 2024 GDP figure providing some support for sterling,” ING added.
“We doubt that these better-than-expected results will have too much influence on the Bank of England’s thinking – other than perhaps giving it some room for policy patience. And we maintain our downward bias for sterling in the coming quarters.”
traded 0.1% higher at 1.0784, although this firmer tone may be short-lived with the European Central Bank all but promising a rate cut on June 6.
With euro zone inflation still on track to fall to 2% next year, policymakers are likely to start cutting interest rates from a record high in June, a report from their April meeting showed on Friday.
Markets are now expecting up to three rate cuts this year or two after June, most likely in September and December when the ECB will also release new economic forecasts.
Yuan falls to two-year low
In Asia, the index rose 0.1% to 7.2339, hitting a two-week high after data released over the weekend gave mixed signals on inflation in China.
Inflation rose more than expected in April as continued stimulus from Beijing helped support demand. But inflation fell for the 19th month in a row as business activity in China remained sluggish.
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Traders are also wary of China after reports emerged last week that the Biden administration was preparing new trade tariffs against the country, particularly 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 any potential government intervention to support the currency, following at least two instances of intervention in early May. The government was seen to intervene to bring USD/JPY down from 34-year highs above 160.