Market Update: Dollar Weakens Ahead of US Inflation Data

US Dollar Falters Before Key Inflation Figures

The US dollar saw a decline in early European trading as it hovered near two-month lows. Investors eagerly awaited the release of crucial US inflation data to gain insights into the Federal Reserve’s upcoming rate-cutting decisions.

At 04:30 ET (09:30 GMT), the Dollar Index, tracking the greenback against major currencies, edged 0.1% lower to 102.287. The previous week witnessed a significant drop of over 1%, pushing the index to mid-January levels.

Anticipation Surrounding US CPI Data

Last week, the dollar faced pressure following dovish remarks by Fed officials, hinting at potential rate cuts in the near future. Mixed job data further fueled speculations of a June rate cut. Traders are now closely watching the upcoming consumer price index (CPI) data for February to gauge the possibility of Fed easing.

Economists predict a 0.4% increase in February’s CPI after a surprising 0.3% rise in January. Analysts at ING foresee the inflation figures halting the dollar’s decline this week, suggesting a potential reversal of recent losses.

Euro Strength Continues

Meanwhile, the euro maintained its momentum, trading 0.1% higher at 1.0944. The European Central Bank’s decision to hold rates last week hinted at possible rate cuts in June to support the struggling economy. Traders eagerly await the eurozone’s industrial production report for January for further market insights.

Despite the possibility of a correction in EUR/USD, analysts anticipate a higher Euro against the dollar in the long run, driven by potential ECB and Fed rate cuts in June.

Pound Sterling and Yen Trends

The British pound slightly weakened at 1.2841, with focus on the latest UK economic data and speculations of a rate cut by the Bank of England. In Asia, the yen surged to a one-month high against the dollar, supported by positive GDP data, hinting at potential policy changes by the Bank of Japan.

Other currencies like the Chinese yuan and Australian dollar witnessed fluctuations amidst market uncertainties surrounding rate hikes by respective central banks.