Investing.com – The US dollar retreated from recent highs on Tuesday as favorable regional inflation data hit the euro ahead of this week’s European Central Bank policy-setting meeting.
At 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading largely unchanged at 102.915, repeating the previous session’s two-month peak.
The index is still up 2.3% over the past month and is on track to end its three-month losing streak.
The dollar retreats from highs
The US currency has been in high demand in recent weeks as employment and inflation data fueled hopes for a slower pace of Fed rate cuts after the central bank cut rates by as much as 50 basis points in September and had announced the start of a relaxation cycle. .
The Fed’s governor promoted the idea on Monday, calling for “more caution” in future rate cuts. Waller said the central bank should only cut interest rates gradually in the coming months.
The US economic calendar is relatively quiet on Tuesday, but there are more Fed speakers to listen to, including FOMC members and .
Traders were pricing in an 86.8% chance of a 25 basis point cut in November, and a 13.2% chance of it being unchanged, CME Fedwatch showed.
The euro continues to fall ahead of the ECB meeting
In Europe, trading was 0.2% lower at 1.0892 after the release of more regional inflation data pointed to further rate cuts by the , starting on Thursday.
French fell more than initially expected in September, according to data released earlier Tuesday, with the harmonized annual consumer price index revised downwards to 1.4%, the lowest level since early 2021.
Spain also fell well below the ECB’s 2.0% target, falling 1.6% in September compared to the same month last year, suggesting underlying price pressures in the eurozone’s largest economy are minimal.
The ECB has already cut interest rates twice this year and a 3.5% cut in deposit rates later this week has been almost fully priced in by the financial markets.
“The euro is losing some ground ahead of Thursday’s European Central Bank meeting and has now made a decisive break below 1.090,” ING analysts said in a note. “The widening interest rate differentials against the USD are clearly driving a shift in strategic EUR/USD positioning, and CFTC data showed that net longs have fallen from 13.5% to 5.9% since early September the open interest.”
rose 0.1% to 1.3070 after yields unexpectedly fell from 4.1% to 4% in August, signaling underlying strength in the labor market.
However, declines in average earnings opened the way for a further rate cut at the next meeting in November, provided Wednesday’s data does not deliver a significant upside surprise.
Yuan under pressure
rose 0.4% to 7.1156, with the yuan under pressure on uncertainty surrounding China’s plans to hand out fiscal stimulus, with the Finance Ministry failing to provide key details on the planned measures – particularly its size and timing.
Sentiment towards China was also affected by a series of weak economic data. Data on Monday showed China’s trade balance shrank more than expected in September, reflecting a sharp slowdown in export growth, while earlier measurements showed a disinflationary trend was still in place.
fell 0.4% to 149.11, with the yen recovering slightly after the pair threatened to break above the 150 resistance level