Latest Articles

HomeLatestDollar Holds Firm Ahead of Global Inflation Data

Dollar Holds Firm Ahead of Global Inflation Data

On Monday, the dollar maintained its stability, though it was poised for its first monthly decline this year, with investors closely monitoring inflation data from the United States, Europe, and Japan to gauge the global interest rate landscape.


Foreign exchange trading has been largely influenced by the pursuit of “carry” in recent months, favoring higher-yield currencies and bolstering the dollar, while the oscillating nature of U.S. economic data has left policymakers uncertain about the future of interest rates.


Several major currency pairs have remained within narrow ranges. The euro, which saw a 0.9% increase against the dollar last week, remained within a range it has held for over a year, hovering around $1.085.


The euro exhibited minimal response to a survey released on Monday indicating a deterioration in German business confidence in May, contrary to expectations of improvement.

Trading activity on Monday was subdued due to holidays observed in both Britain and the United States.

Investor attention will turn to German inflation figures scheduled for Wednesday and eurozone data on Friday, which could confirm expectations of an imminent rate cut in Europe penciled in for next week.

Sterling tested the upper end of a range it has maintained throughout the year, reaching $1.2735.

Friday’s release of the U.S. core personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, is anticipated to show stability on a month-on-month basis.

The dollar experienced a retreat following April’s data indicating a slowdown in consumer price increases. However, the broader perspective suggests that inflation and related indicators remain above the Fed’s 2% target.

The dollar index, gauging the performance of the U.S. currency against six others, recorded a modest decline to 104.71. It is on course for a 1.5% decline in May, the largest monthly drop since December.

Pepperstone strategist Christ Weston noted that a 25-basis-point U.S. interest rate cut in September is currently priced at a 50/50 probability, with expectations of a total of 57 basis points in cuts by December. Weston suggested that a significant deviation from these expectations, such as a U.S. core PCE above 3% or below 2.7%, could prompt market reactions.

Amidst lingering uncertainty over interest rates, investors have sought income opportunities, leading to selling pressure on low-yielding currencies like the yen, yuan, and Swiss franc in favor of the euro and the dollar.

The Swiss franc has seen a downward trajectory throughout the year, reaching its lowest level against the euro since April 2023 last week, at 0.9928 francs per euro.

While the yen may register its first monthly gain of the year, thanks to suspected intervention from Japanese authorities in April and May, it has since retreated. On Monday, it remained stable at 156.88 to the dollar, despite limited support from rising Japanese government bond yields.

Tokyo CPI data due on Friday is expected to offer insights into the national inflation trend, closely watched alongside finance ministry data revealing the scale of Japan’s intervention.

The U.S. decision to shorten the equity market settlement from two days to one is another factor impacting currency trade this week, with expectations of increased activity during early Asian trading hours.

In the cryptocurrency markets, ether recorded its largest weekly gain in nearly three years following a surprise approval for some U.S. exchange-traded fund (ETF) applications. Although further approvals are required before launch, ether saw a 25% increase against the dollar last week and an additional 5% rise to $3,938 in Asian trading on Monday.