Dollar edges lower ahead of key CPI release

By Peter Nurse — The dollar fell slightly lower on Tuesday as traders waited for the release of the latest US inflation data for guidance on the timing of the start of the Federal Reserve’s withdrawal of stimulus.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading marginally lower at 92,627 after pulling from a two-week high on Monday at 92,887 .

USD/JPY rose 0.1% to 110.09, EUR/USD was flat at 1.1808, rebounding from Monday’s low of 1.1770, the lowest since August 27, while GBP/USD rose to 1. .3838, aided by the UK employment data showing that the total number of payroll workers climbed above February 2020 levels in August, just before Britain went into Covid-19 lockdown for the first time.

On Tuesday, the main focus will be on the release of US consumer price data at 8:30 a.m. ET (1230 GMT), especially as the next Federal Reserve policy review is so close, September 21-22.

Annual consumer price inflation is expected to fall slightly to 5.3% from 5.4% in July, while core CPI, an index that excludes volatile energy and food prices, is slightly lowered annually to 4.2%, from 4.3% in July.

Recent Fed communications have not strayed from the view that inflationary pressures are transitory, so even in the event of another rise in inflation, we doubt Fed interest rate expectations — and by extension the dollar — in particular will affected,” ING analysts said in a note.

The Wall Street Journal reported Friday that Fed officials will seek an agreement to cut bond purchases in November.

Elsewhere, the risk-sensitive AUD/USD fell 0.4% to 0.7335 after Philip Lowe, head of the Australian central bank, withdrew from market prices for early rate hikes.

“I find it hard to understand why rate hikes are being priced into next year or early 2023,” Lowe said earlier Tuesday. “While policy rates in other countries may be increased during this time, our experience with wages and inflation is very different.”

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