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U.S. Dollar Slips Ahead of Key Data Releases and Federal Reserve Meeting

The U.S. dollar experienced a retreat on Tuesday, pulling back from a one-month peak, as Treasury yields declined ahead of significant U.S. inflation data and the impending Federal Reserve meeting.

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At 04:15 ET (08:15 GMT), the Dollar Index, which measures the dollar against a basket of six major currencies, edged 0.3% lower to 104.795, after reaching 105.39 on Monday, its highest level since May 14.

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The dollar’s retreat comes as investors adopted a cautious stance in anticipation of critical U.S. consumer price data and the latest interest rate forecasts from the Federal Reserve, scheduled for release on Wednesday.

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While the dollar received a boost from Friday’s robust jobs report, which led to higher Treasury yields as traders scaled back expectations for Fed rate cuts this year, yields have since retreated on Tuesday, putting downward pressure on the greenback.

Market participants await the May Consumer Price Index (CPI) data, with expectations for a modest 0.1% monthly increase and an annual rise of 3.4%, well above the Fed’s 2% target. Traders are also monitoring the Federal Reserve’s policy-setting meeting, widely expected to conclude with no change in interest rates.

Analysts note that the dollar has consistently ended lower following the last four consecutive Federal Open Market Committee (FOMC) meetings, primarily driven by Chair Jerome Powell’s dovish rhetoric during press conferences. Given the prevailing low market pricing of this year’s Fed easing cycle, a similar outcome is plausible.

Meanwhile, the euro stabilized after falling to 1.0733 against the dollar on Monday, following the surprise announcement by French President Emmanuel Macron of snap elections due to gains by the far right in European Parliament elections. Analysts foresee challenges for the euro to rally this month amid concerns over fiscal consolidation under a potential National Rally government.

The British pound slipped 0.1% to 1.2719 against the dollar after the release of UK labor data, which revealed a rise in the unemployment rate to 4.4% in April. The surge in the claimant count in May suggests potential interest rate cuts by the Bank of England later this month, although robust wage-driven inflation remains an issue.

Market watchers anticipate major updates from the Bank of England’s rate meeting on June 20 due to limited communication opportunities ahead of the July 4 election.

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