Investing.com – The US dollar retreated and consolidated against its major peers on Wednesday, ahead of the release of a key US inflation number later in the session.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.4% lower at 106,500, falling further from last week’s two-year peak .
Dollar is consolidating faster than PCE data
Currency traders appear to be cashing in on the dollar’s gains ahead of the release of the October price index, due later in the session, before US markets close for Thanksgiving on Thursday.
The US safe-haven currency had been buoyed by newly-elected President Donald Trump’s threat to impose tariffs on Canada, Mexico and China, reigniting fears of a global trade war with dire consequences for global economic growth.
The measures are also widely seen as potentially inflationary for the U.S. economy, which could prevent the Federal Reserve from cutting interest rates substantially.
“The highlight of today’s session will be the release of the US PCE deflator for October, which is expected to reach 0.3% MoM,” ING analysts said in a note.
“Even though the market has largely moved on from the US inflation story, a persistent reading will increase doubts about whether the Fed should make cuts in December after all. Expect the dollar to largely maintain recent gains, although end-of-month selling remains a risk.”
Euro under pressure due to weak economic prospects
In Europe, yields rose 0.3% to 1.0514, helped by dollar weakness during the session, but the single currency remains under pressure given the weak European economic outlook.
Data released earlier Wednesday showed France’s index fell in November, hit by rising household fears over unemployment.
INSEE’s monthly business survey showed the sentiment indicator fell to 90 from a revised value of 93 in October.
The European Central Bank has already cut interest rates three times this year and is widely expected to cut again in December.
traded 0.3% higher at 1.2607, further from last week’s six-week low.
“With one-week deposit rates at 4.75% and the highest in the G10 space, sterling could see some inflows as the market makes up its mind about the speed and scale of Trump’s policy agenda,” ING said.
“In addition, the Bank of England’s interest rate profile is increasingly trading closer to the Fed than the ECB, suggesting that the pound should outperform the euro.”
The yen wins on safe haven bets
fell 1% to 151.58, with the Japanese yen helped by safe-haven bids and growing expectations for a rate hike in Japan in December.
fell slightly to 7.2505, but still remained near a four-month high, amid concerns that Trump’s potential tariffs will hit the already weakened Chinese economy.
rose 0.9% to 0.5889, recovering from multi-month lows after the country’s central bank cut rates by 50 basis points and announced further easing early next year, citing subdued domestic economic activity and declining inflationary pressures.
