Dollar steady ahead of key U.S. inflation report
Greenback holds near two-week lows as traders await CPI data that could shape Federal Reserve policy expectations.
The U.S. dollar hovered near a two-week trough on Tuesday as investors paused ahead of the release of the latest consumer price index data, which is expected to provide fresh signals on the Federal Reserve’s interest-rate trajectory.
The dollar index, which measures the greenback against a basket of six major currencies, was little changed at 104.50, consolidating losses from the previous session. The index fell to its lowest level since late May on Monday, reflecting a broad decline in the currency as market participants reassessed the outlook for U.S. monetary policy.
Traders are focused on the U.S. Bureau of Labor Statistics’ CPI report, due Wednesday, for insights into whether inflation is cooling sufficiently to justify potential Fed rate cuts later this year. Economists polled by Reuters forecast a 0.3% monthly increase in headline CPI for May, with core CPI, which excludes volatile food and energy prices, projected to rise 0.3% as well.
A softer-than-expected inflation print could reinforce bets that the Fed will begin easing policy sooner than previously anticipated, while a stronger-than-projected reading may push back expectations for rate reductions. Futures markets currently price in about a 60% chance of a Fed rate cut in September, according to the CME FedWatch Tool.
The euro held steady at $1.0870, having gained ground against the dollar earlier in the session. The Japanese yen traded marginally stronger at 156.80 per dollar, while the British pound was flat at $1.2760. The Swiss franc, often seen as a safe-haven currency, was little changed at 0.9020 per dollar.
Against the backdrop of the CPI release, market attention remains on global central bank signals, with the European Central Bank and Bank of Japan also under scrutiny for their next policy moves. The Fed’s stance will likely remain the primary driver for the dollar in the near term, given the outsized impact of U.S. economic data on global financial conditions.
The greenback’s recent weakness has also been influenced by softer U.S. economic data, including last week’s nonfarm payrolls report, which showed a slowdown in job growth and raised concerns about the sustainability of the U.S. economic expansion.
Sophie covers currency markets and central bank policy across Europe, with a focus on how rate decisions ripple through FX pairs. She has been tracking the ECB's policy path since the start of the current easing cycle.
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