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U.S. Dollar Gains Traction Amidst Rising Yields; Euro Awaits Inflation Indicators

In early European trading on Wednesday, the U.S. dollar displayed upward momentum, bolstered by increasing expectations that the Federal Reserve will postpone interest rate cuts until later in the year. The Dollar Index, tracking the dollar against a basket of major currencies, edged 0.1% higher to 104.670, rebounding from Tuesday’s near two-week low of 104.33.

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Dollar Strength Fueled by Yield Surge

The dollar’s resilience persists within a narrow trading range, as market participants await the release of the U.S. core personal consumption expenditures price index report, a crucial gauge of inflation favored by the Federal Reserve. A modest uplift followed a rise in U.S. Treasury yields, triggered by tepid demand observed in the recent auction of two-year and five-year notes. Analysts remain attentive to the implications of the upcoming $44 billion auction of seven-year U.S. Treasuries, pondering its impact on debt funding and its potential repercussions on financial markets.

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Euro Anticipates German CPI Data

EUR/USD retreated 0.1% to 1.0852 ahead of the release of German consumer inflation data, a precursor to the comprehensive eurozone CPI release later in the week. The European Central Bank gears up for a potential interest rate cut next week amidst ongoing uncertainty regarding future monetary policy. Despite this, the euro is poised for a 1.7% monthly gain against the dollar, marking its first monthly ascent in 2024.

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GBP/USD Sees Modest Uptick Amid Election Campaign

GBP/USD inched higher to 1.2762 as the UK election campaign unfolds. Labour’s Shadow Chancellor, Rachel Reeves, echoes favorable fiscal sentiments, contributing to the market sentiment amidst ongoing political dynamics.

BOJ’s Influence on Yen Remains Limited

USD/JPY traded largely unchanged at 157.16, with the yen receiving scant support from Bank of Japan (BOJ) officials’ comments. Adachi Seiji of the BOJ warned against premature policy tightening, emphasizing the need for cautious measures amidst inflationary considerations. However, policy stance remains accommodative to sustain economic resilience.

USD/CNY Sees Modest Gain

USD/CNY advanced 0.1% to 7.2489 following a soft midpoint fix by the People’s Bank of China, propelling the pair to its highest level since mid-November.

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