The U.S. dollar slipped modestly on Tuesday as markets awaited the release of July’s consumer inflation data, a report expected to influence Federal Reserve interest rate decisions in the near term.
By 04:15 ET (08:15 GMT), the Dollar Index, which measures the greenback’s strength against six major currencies, fell 0.1% to 98.317, after gaining 0.5% over the previous two sessions.
All eyes were on the U.S. consumer price index (CPI) figures due later in the day, as traders looked for guidance on the future path of interest rates in the world’s largest economy.
A moderate inflation reading could reinforce bets on a Fed rate cut next month. However, if evidence shows that tariffs imposed by U.S. President Donald Trump are fueling inflation, the central bank might hold off on easing.
The headline CPI is predicted to edge up to 2.8% from June’s 2.7%, staying above the Fed’s 2% target.
“Despite some positioning rebalancing ahead of the release, a hotter-than-expected print should still support the dollar, as markets may revise down expectations for a September Fed cut to below 20bp,” ING analysts wrote in a note.
They added, “However, we think labor market data is more influential than inflation, given the consensus view that tariff-induced price shocks are transitory and last month’s large payroll revisions.”
In Europe, the euro inched higher against the dollar, with EUR/USD reaching 1.1618 ahead of Germany’s ZEW economic sentiment survey for August, which is expected to provide insight into Europe’s largest economy.
The single currency’s direction will also hinge on news ahead of Friday’s summit between the Russian and U.S. presidents, where a potential truce in Ukraine is on the agenda.
“We expect today’s U.S. CPI to bring EUR/USD back below 1.16 with risks skewed to a test of the 1.150 support if the Putin-Trump summit yields few results on Friday,” ING commented.
The British pound gained slightly, with GBP/USD up 0.1% to 1.3451 after data revealed that the U.K.’s unemployment rate held steady at 4.7% in the three months ending in June — the highest since July 2021. Meanwhile, pay growth across the economy, excluding bonuses, remained at an annual 5.0%.
“While the labor market is cooler than earlier this year and softer than in other major economies, there’s no clear signal yet for the Bank of England to accelerate rate cuts,” ING noted.
Turning to the yuan, USD/CNY edged up slightly to 7.1897, with limited movement following the announcement that China and the U.S. agreed to extend their trade truce for another 90 days before imposing further tariffs.
This extension eased fears of renewed tensions in the long-running U.S.-China trade dispute, keeping tariffs at substantially reduced levels.
The development also boosted hopes for a more lasting trade agreement between the world’s two largest economies.
Elsewhere, USD/JPY rose 0.1% to 148.33, while AUD/USD dipped 0.2% to 0.6503 after the Reserve Bank of Australia cut its benchmark interest rate by 25 basis points to 3.60%, matching market expectations.
This marks the central bank’s third rate reduction this year, continuing the easing cycle that began in the first quarter.
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