The U.S. dollar rose on Monday during a light trading day as traders awaited the release of key inflation data later in the week, seeking clues about the Federal Reserve’s upcoming policy decisions.

Dollar gains on CPI expectations

The dollar received support at the end of the previous week after better-than-expected U.S. jobs data led traders to trim their bets on interest rate cuts by the Federal Reserve in 2024.

Earlier in the week, the U.S. currency was reported to have weakened due to concerns about the U.S. economy, coupled with the Bank of Japan’s hawkish stance.

Fed funds futures imply a 49% chance of a half-point rate cut in September, down from 100% the previous week.

This backdrop of uncertainty makes markets highly vulnerable to data and events, most notably the U.S. consumer price index on Wednesday.

July CPI data is expected to show that inflation continues to approach the Fed’s 2% annual target, with forecasts indicating that annual core inflation will dip to 3.2%, the lowest level since April 2021.

Sterling Awaits Inflation Data

EUR/USD rose to 1.0920, close to the high of 1.1009 reached last week, marking the pair’s highest level since January 2 of this year.

In Europe, the pair is showing signs of a quiet start to the week, with a sparse European economic data calendar and few European Central Bank speeches on the agenda.

This has led the market to focus on the first revision of the Eurozone’s GDP data for the second quarter.

The European Central Bank began cutting interest rates in June, and many expect policymakers to agree on another rate cut scheduled for September.

GBP/USD traded flat at 1.2759 at the start of a week full of U.K. economic data, as investors look for signs that the Bank of England will continue its rate-cutting cycle next month.

The BoE cut rates for the first time since 2020 earlier this month, and markets are currently pricing in a 33% chance of another quarter-point cut at its September meeting.

Data on wage growth will be released on Tuesday, followed a day later by inflation figures, which will be closely scrutinized for signs of ongoing price pressures.

Yen plunges

In Asia, USD/JPY rose nearly 0.4% to 147.25, retreating further after a large-scale rally in the previous month.

Economic data and central bank meetings in Asia kept investors on edge, while a public holiday in Japan limited volumes.

USD/CNY rose 0.2% to 7.1811, while the yuan retreated sluggishly.

Although large losses have been stemmed by continued support from the People’s Bank, skepticism about the Asian giant’s economy has kept traders mostly short on the currency.

This week, the focus is on China’s industrial production and retail sales data to gain more insight into the country’s primary economic drivers.