The U.S. dollar (USD) gained value in European market trading on Thursday, maintaining recent strength in anticipation of the release of further clues about U.S. interest rates relative to producer inflation along with retail sales data.

The dollar Index (DXY), which tracks the value of the U.S. dollar against a basket of six major currencies, stood at 102.490 at 12:00 CET, marking a 0.1% increase

Dollar rallies on expectations of US PPI data

The dollar was boosted earlier this week after the release of a higher-than-expected consumer price index reading, which increased bets that the Federal Reserve (Fed) will take its time in cutting interest rates.

The U.S. currency declined nearly 1.7% in value over the past month and experienced significant volatility last week due to Fed Chairman Jerome Powell’s cautious remarks during his two-day congressional testimony, in which markets believe he suggested that the Fed was in a position to make interest rate cuts by the U.S. summer. 

However, the index has continued to rise by around 1.5% this year as U.S. data has shown the economy remains strong, and Tuesday’s CPI report this week indicated that inflation remains a major problem.

Attention is now focused on the release of February’s Producer Price Index and retail sales data, as we look for more signals regarding the likely stance of Fed policymakers ahead of next week’s scheduled monetary policy meeting.

The euro is not as volatile as expected. Will the ECB start cutting rates soon?

In the Eurozone, the EUR/USD is down 0.1% at 1.0942 and the lack of passing economic data on the euro has fueled the lack of volatility.

The European Central Bank (ECB) decided to maintain interest rates at the current level of 4% last week, although traders expect the ECB to start cutting interest rates very soon, due to slow growth in Europe, but especially in Germany, one of the strongest economies.

On Wednesday, French central bank president and ECB policymaker Francois Villeroy de Galhau indicated the ECB might begin reducing rates in the spring, sometime from April and June.”

Earlier this month, ECB President Christine Lagarde hinted that the long-awaited rate cut is more likely to be delivered at the central bank’s meeting in early June, rather than in April.

GBP/USD is trending higher by 0.2% to 1.2816 and the Bank of England (BoE) is expected to leave interest rates unchanged at its meeting next week as inflation remains above the BoE’s medium-term target of 2%.

BoJ meeting gains importance

In Asia, USD/JPY is up 0.1% to 147.28 with the yen giving up some of its recent gains ahead of next week’s Bank of Japan BoJ meeting.

Reports signal that the BoJ is close to ending its loose monetary policy, primarily after an upward revision to GDP data signals that the Japanese economy dodged a technical recession during the fourth quarter.

USD/CNY is up 0.1% to 7.1902 on lingering doubts about the recovery of the country’s economy, while AUD/USD posts a 0.1% appreciation to 0.6624, driving the commodity-priced Aussie dollar to a near two-month high in recent weeks.