By Karen Brettell
NEW YORK (Reuters) - The dollar fell on Tuesday as investors waited on inflation data for further signs of whether price pressures are ebbing and what it means for further Federal Reserve interest rate hikes.
Consumer price data on Wednesday is expected to show headline inflation rose by 0.2% in March, while core inflation rose 0.4%.
"A lot of traders are focused on this inflation data," said Edward Moya, senior market analyst at OANDA in New York. "Everyone's trying to get a sense of does the disinflation process return and does this complicate what the Fed does."
The Fed is seen as likely to hike rates by an additional 25 basis points at its May 2-3 meeting, before pausing in June. Markets are also pricing for the Fed to cut rates by year-end on an expected recession, though Fed officials have stressed the need to keep rates high in order to bring down inflation.
Strong jobs data for March have added to expectations that the U.S. central bank will complete one more rate hike. The data on Friday showed employers added 236,000 jobs while the unemployment rate fell to 3.5%.
New York Fed President John Williams said on Tuesday that the prospect of the Fed raising its benchmark interest rate only once more and in a 25 basis point increment is a useful starting point but the central bank's policy path will depend on incoming data.
Chicago Fed President Austan Goolsbee said the U.S. central bank should be cautious about raising rates in the face of recent banking stress, noting that a pullback in bank lending would help quell inflation and leave less for monetary policy to do.
Meanwhile, the Fed is on a path to shrink the size of its massive stock of cash and bonds for several more years, and will likely also face several more years of negative net income as well, according to a report from the New York Fed.
The dollar index fell 0.26% to 102.20. The euro gained 0.41% to $1.0906.
The euro was also likely boosted by a rise in European bond yields on Tuesday as traders in the region returned after markets were closed on Friday and Monday for the Easter holiday.
Algorithms trading currencies based on the difference between European and U.S. rates might have sold euros for dollars when U.S. Treasury yields rose after the jobs data while European bond markets were closed, said Simon Harvey, head of FX analysis at Monex Europe.
European bond yields rose sharply on Tuesday, catching up after the break.
"There's just that catch-up effect flushing through," Harvey said.
The dollar edged higher against the yen, after jumping on Monday as Bank of Japan Governor Kazuo Ueda signaled no hurry to dial back its massive stimulus. The dollar was last up 0.08% against the Japanese currency at 133.73.
In cryptocurrencies, bitcoin breached the key $30,000 level for the first time in 10 months. It was last up 1.9% on the day at $30,219.
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Currency bid prices at 2:38PM (1838 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 102.2000 102.4700 -0.26% -1.246% +102.5100 +102.0000
Euro/Dollar $1.0906 $1.0861 +0.41% +1.78% +$1.0928 +$1.0862
Dollar/Yen 133.7250 133.6000 +0.08% +1.98% +133.7550 +132.9700
Euro/Yen 145.85 145.08 +0.53% +3.96% +145.8600 +144.8800
Dollar/Swiss 0.9031 0.9096 -0.70% -2.32% +0.9093 +0.9030
Sterling/Dollar $1.2418 $1.2384 +0.29% +2.70% +$1.2456 +$1.2388
Dollar/Canadian 1.3470 1.3509 -0.27% -0.57% +1.3516 +1.3469
Aussie/Dollar $0.6651 $0.6642 +0.14% -2.43% +$0.6680 +$0.6640
Euro/Swiss 0.9850 0.9876 -0.26% -0.45% +0.9891 +0.9850
Euro/Sterling 0.8781 0.8768 +0.15% -0.71% +0.8790 +0.8764
NZ $0.6189 $0.6217 -0.44% -2.52% +$0.6233 +$0.6185
Dollar/Dollar
Dollar/Norway 10.5650 10.5260 +0.56% +7.86% +10.6010 +10.4690
Euro/Norway 11.5258 11.4231 +0.90% +9.84% +11.5737 +11.4052
Dollar/Sweden 10.4543 10.5212 -0.21% +0.45% +10.5166 +10.4327
Euro/Sweden 11.4025 11.4267 -0.21% +2.27% +11.4412 +11.3920