Dollar Slides Ahead of US Inflation Data Release
The United States (US) dollar falls after rising Monday on expectations for the Federal Reserve to raise interest rates further following Friday’s strong U.S. nonfarm payrolls data.
The DXY dollar index falls 0.2% to 102.355, according to market data as 1.10 is holding EUR/USD for now. EUR/USD could have come to a lot lower on this after it firmed up expectations for a 25bp Fed hike on 3 May.
“Looking at the rest of this week, market attention is set to remain on US economic data, including consumer price index inflation, retail sales, industrial production and the University of Michigan consumer sentiment index,” Unicredit Research analysts write.
Consumer price index (CPI) data on Wednesday may show core inflation accelerated slightly, which could lift the dollar if markets further adjust Fed rate cut bets but only briefly as rate differentials between the U.S. and the rest of the world are expected to tighten, they say.
The dollar slipped 0.21% to 133.31 yen, after jumping 1.1% on Monday. Selling pressure eased on the yen, which is highly sensitive to long-term U.S. bond yields, as the 10-year Treasury yield edged lower in Tokyo trading after a sharp two-day climb.
A sense of cautious optimism remains in financial markets as various measures of financial stress modestly ease back after last month’s US banking crisis, according to Chris Turner, ING Economic Global Head of Markets.
Turner added that evidence for those of a bullish mindset is the small drop in emergency dollar demand through the Fed’s discount window and the fact that the Federal Home Loan Bank system has had to issue much less debt in support of US regional lenders.
“..Tomorrow will probably be the most interesting day of the week, where the US March CPI should make the case for a 25bp Fed hike on 3 May (18bp currently priced), while the FOMC minutes will reveal some of the Fed’s thinking behind March’s 25bp hike in the midst of a banking crisis”, Turner said.
Analysts noted that any signs that the Fed is very close to a peak in rates – and that it will have the ability to cut rates if need be – would be seen as risk-positive and dollar negative. # Dollar Slides Ahead of US Inflation Data
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