The U.S. dollar edged down modestly on Tuesday, holding close to its highest level in three weeks as investors prepared for the release of key inflation data that could influence the Federal Reserve’s monetary policy decisions.
By 4:30 AM ET (8:30 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, slipped 0.1% to 97.63, remaining near its peak since June 25.
Dollar Softens Before CPI Figures
The dollar, traditionally seen as a safe haven, eased slightly amid improved risk appetite following stronger-than-expected GDP growth in China for Q2 and Nvidia’s announcement about resuming chip exports to China—signaling a potential easing of U.S.-China tensions.
Despite these positive cues, trading volume remained light as market participants awaited the U.S. consumer price index (CPI) report. The market anticipates a 0.3% rise in prices for June, up from 0.1% in May, with annual inflation expected to tick up to 2.6% from 2.4%.
Investors hope the Fed will restart interest rate cuts, but officials remain cautious, citing tariff-related inflation risks as a reason to hold steady.
Analysts at ING noted, “Any deviation from the 0.3% monthly inflation forecast could push the dollar higher or lower accordingly.” They also pointed out that current market pricing still includes about 16 basis points of Fed easing in September, a view that may shift in the coming months.
Euro Gains Ahead of German Sentiment Data
In Europe, the euro climbed 0.2% to 1.1691 against the dollar after dipping to a near three-week low of 1.1650 on Monday.
Spanish inflation slightly exceeded expectations for June, but the focus shifted to Germany’s ZEW economic sentiment index for July, where investors seek signs of strength in Europe’s largest economy.
According to ING, “The data are expected to show positive momentum, reflecting optimism about Germany’s medium-term fiscal stimulus.”
The European Central Bank (ECB) has cut interest rates eight times during its easing cycle, most recently in June, bringing its deposit rate to 2%. ECB official Fabio Panetta suggested last week that further easing could continue if trade tensions and geopolitical risks deepen disinflationary pressures.
Sterling Holds Steady After UK Contraction
The British pound rose 0.2% to 1.3447 against the dollar, rebounding from a two-week low after the UK economy shrank for the second consecutive month in May.
ING analysts highlighted, “Upcoming UK labor data on Thursday will be crucial. If May’s payroll decline of 109,000 jobs remains unchanged and further losses are seen in June, both UK interest rates and sterling could face additional downward pressure.”
Yuan Shows Little Movement Despite Mixed Data
The Chinese yuan traded slightly higher at 7.1739 per dollar despite a flood of economic releases. China’s economy grew 5.2% year-on-year in Q2 2025, surpassing the 5.1% forecast, supported by strong exports and government stimulus.
Industrial production exceeded expectations in June, but retail sales growth fell short, while unemployment stayed steady at 5%.
Elsewhere, USD/JPY remained flat near 147.71, and AUD/USD gained 0.3% to 0.6569.
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