Investing.com – The US dollar fell in early European trading on Tuesday after a slight improvement in risk sentiment, but traded within tight ranges ahead of the release of key inflation data.
At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 104.410, giving back some of last week’s strong gains as traders returned from holidays in Britain and the US.
Dollar Ahead of Core PCE Release
The dollar fell slightly on Tuesday, but trading margins remain tight ahead of Friday’s release of the US report – the Federal Reserve’s preferred inflation measure.
The outlook for US yields has been the dominant driver of currency moves of late, and traders will be looking for further clues to the pace and size of rate cuts expected this year.
The core PCE index is expected to remain broadly stable on a month-to-month basis, as markets settle into the higher-for-longer-rates narrative following last week’s Fed minutes, along with cautious-sounding comments from a number of policymakers.
Investors will also have the opportunity to hear from several Fed speakers throughout the week, including the Governor, the President of the Cleveland Fed, the Governor, the President of the New York Fed and the President of the Atlanta Fed.
The economic calendar also includes revised first-quarter data on Thursday and Fed data on Wednesday.
The euro rises ahead of the CPI release
In Europe, it traded 0.2% higher at 1.0872, outperforming key eurozone consumer inflation data due late this week.
The country is preparing for a rate cut next week, and policymakers largely confirmed this with soothing comments on Monday.
The ECB has plenty of room for rate cuts and current market expectations for long-term easing are reasonable, ECB policymaker Francois Villeroy de Galhau said in a newspaper interview on Monday, describing a cut next month as a “done deal.”
There is uncertainty about what will happen next, and Friday will be watched for guidance.
Economists expect eurozone inflation to rise by 2.5% year-on-year in May, up from 2.4% in April, while underlying inflation remains stable at 2.7%.
rose to 1.2770, while the British economic calendar is quiet as the election campaign gets underway.
“There will be some interest in any campaign pledges from Labor leader Keir Starmer (who is leading in the polls by a wide margin). He kicked off the campaign yesterday with a speech that, however, has had little resonance in the market,” ING analysts said in a note.
The yen remains under pressure
In Asia, the rate rose to 156.89, holding close to recent highs, as the government’s apparent foreign exchange market intervention in early May provided only fleeting relief for the yen.
is due out this Friday and will likely play a role in the Bank of Japan’s interest rate outlook.
traded 0.1% higher at 7.2471, with the pair still near a six-month high amid creeping doubts about a Chinese economic recovery.
Key Chinese data is also available this week.
