In the early hours of Wednesday’s European session, the US dollar moved strongly in anticipation of key inflation data, taking advantage of growing expectations that the Federal Reserve will delay interest rate cuts until the end of the year.

The dollar benefited from rising yields

The dollar remains in a narrow range as traders cautiously await Friday’s release of the US core personal consumption expenditures price index, the Fed’s favored measure.

However, it has received a little support after US Treasury yields rose following a lackluster debt auction for the sale of two- and five-year bonds, which raised doubts about demand for US government debt.

Additionally, with doubts lingering about the timing of the Fed’s first rate cut and inflation remaining above target, the possibility of another rate hike still exists.

‘I don’t think anyone has completely dismissed the possibility of a rate hike,’ Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Tuesday. ‘I think the chances of us raising rates are pretty low, but I don’t want to rule anything off the table.’

The core PCE index is expected to remain stable on a monthly basis, although any sign of continued inflation pressures will boost the dollar.

EUR awaits German CPI

On the European continent, the EUR/USD lost 0.1% to 1.0852, ahead of the release of German consumer inflation data, which will provide many more signals about the strength of the eurozone headline CPI due later in the week.

In Europe, the EUR/USD was down 0.1% at 1.0852, awaiting the release of German consumer inflation data, which will provide clues about the strength of the euro zone headline CPI due later in the week.

The European Central Bank is set for an interest rate cut next week, although there is still uncertainty about what will happen next, and the euro is on track for a 1.7% rise against the dollar this month, marking its first month of gains this year.

The European Central Bank is preparing for an interest rate cut next week, but there is uncertainty about what comes next, and the euro is on track for a 1.7% rise against the dollar in the month, its first month of gains in 2024.

GBP/USD rose to 1.2762 as the election campaign in the UK reached its peak.

The Bank of Japan provides little support for the yen

In Asia, USD/JPY traded broadly flat at 157.16, with the Japanese currency receiving almost no support due to comments from Bank of Japan officials.

BOJ member Adachi Seiji noted that the central bank could tighten monetary policy precipitously if the yen’s weakness affects inflation. He also estimated that inflation could rise in the summer-autumn period.

However, Seiji also indicated that the BoJ should be cautious in tightening monetary policy, and that monetary policy will stay accommodative in the short term to promote the strength of the Japanese economy. 

USD/CNY rose 0.1% to 7.2489 as the People’s Bank of China set the midpoint of parity at a very low level and the pair reached its highest level since mid-November of the previous year.