Dollar Recovers from Three-Month Lows; PCE Data Looms Large
U.S. Dollar Edges Higher Ahead of Key Inflation Reading
The U.S. dollar saw a slight uptick in early European trade on Thursday, remaining close to a three-month low as market participants awaited a crucial U.S. inflation report later in the day.
At 04:50 ET (09:50 GMT), the Dollar Index, tracking the greenback against a basket of six other currencies, traded 0.4% higher at 103.120, just above the 102.46 level it reached on Wednesday, marking its lowest point since August 10.
Core PCE Expected to Hit Lowest Level Since 2021
The dollar received a modest boost after third-quarter data revealed an accelerated growth rate. However, with a 3.2% decline in November, the currency experienced its worst month in a year. This trend is attributed to mounting expectations that the Fed will implement interest rate cuts in the first half of 2024.
These expectations were further fueled when Fed Governor, known for his hawkish stance, hinted at the possibility of a rate cut in the coming months if the recent decline in inflation persists.
With anticipation building, traders eagerly await the release of the Fed’s preferred inflation measure, the personal consumption expenditures price index, later on Thursday.
Euro Weakens Ahead of Eurozone Inflation
In Europe, the euro fell 0.4% to 1.0924 as the currency retreated in anticipation of the latest eurozone inflation data release.
The November data is expected to show a decline to 2.7% on an annual basis, down from 2.9% the previous month. However, figures from Wednesday revealed that German inflation eased to 2.3% in November, surpassing the anticipated 2.6%.
The euro also faced pressure after news broke that the Eurozone GDP contracted by 0.1% in the third quarter, falling short of the expected 0.1% growth.
Yen Continues Sharp Recovery
In Asia, the yen traded marginally lower at 147.18, with little support from October’s underwhelming growth and muted retail sales. Despite this, the yen experienced a significant recovery from near 33-year lows in November, poised to achieve a 3% rise for the month, marking its best monthly gain since November 2022.
The yuan edged lower to 7.1295 after a stronger midpoint fix from the People’s Bank of China. However, gains were limited following data showing a sustained decline in Chinese manufacturing activity.
