Dollar Benefits from Risk Aversion Ahead of Key Inflation Data
Investing.com – The U.S. dollar’s resilience
The U.S. dollar edged higher in early European trade Monday, continuing to see demand as risk appetite remained subdued ahead of a key U.S. inflation report later in the week. At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 102.262, remaining within sight of a three-week high.
Dollar in favor ahead of key CPI release
The dollar posted strong gains last week after traders abruptly scaled back expectations that the Federal Reserve could begin cutting interest rates as early as the first quarter of 2024. The monthly U.S. employment report showed U.S. employers hired more workers than expected in December, suggesting a still-resilient labor market – one of the Federal Reserve’s key metrics. This brings Thursday’s U.S. inflation data squarely in focus, as markets seek out more cues on when the central bank could potentially begin trimming rates this year.
Euro on unstable ground
In Europe, the euro traded 0.1% lower at 1.0934, with the euro continuing to drift lower after a decline of 0.9% last week, ending a run of three weeks of gains. In Germany, industrial output rose less than expected in November, climbing 0.3% month-on-month, below the forecast rise of 1%, data showed earlier Monday, as the region’s largest economy continued to struggle. “We continue to see EUR/USD on unstable ground this quarter, and any positive impact from softer US data/better EZ data may be more short-lived than downside corrections,” ING added.
Japanese, Chinese inflation data due this week
Elsewhere, the Japanese yen traded 0.1% lower to 144.50, after the yen last week logged its worst weekly loss since late-2022 in the wake of an earthquake battering central Japan. Chinese yuan rose 0.3% to 7.1613, despite a stronger-than-expected daily midpoint fix by the People’s Bank, as sentiment towards China remained weak. Chinese inflation data is due this Friday, and is expected to show that China remained in deflation through December.
