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Dollars hands back gains ahead of inflation data, Fed meeting;

Published 06/11/2024, 04:16 AM
Updated 06/11/2024, 04:20 AM
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Investing.com - The U.S. dollar retreated Tuesday, falling back from a one-month high, as yields fell back ahead of key U.S. inflation data and the latest Federal Reserve meeting. 

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 104.795, after reaching 105.39 on Monday for the first time since May 14.

Dollar retreats ahead of CPI, Fed meeting

The dollar received a boost from Friday’s stronger-than-expected jobs report, supported by higher Treasury yields as traders pared back bets for Fed rate cuts this year.

However, yields have retreated Tuesday, dragging the dollar lower, as traders opted for a more cautious stance ahead of the release of crucial U.S. consumer price data and fresh Federal Reserve interest rate forecasts on Wednesday.

The May CPI is expected to rise just 0.1% on the month, an annual rise of 3.4% - still considerably above the Fed’s 2% medium-term target.

Traders continue to price in some monetary easing this year, although a reduction in September is now seen largely as a 50:50 shot.

This inflation data comes just below the Federal reserve concludes its latest two-day policy-setting meeting, with no change in interest rates practically a certainty. 

Traders will be looking to see if the Fed officials change their expectations for the number of interest rate cuts this year, a move that is deemed likely given they called for three reductions in their last forecast.

“We note the dollar has ended lower on the day after the last four consecutive FOMC meetings – largely on the back of Chair Jerome Powell's dovish rhetoric at the press conference,” said analysts at ING, in a note. 

“We cannot rule out that happening again given that market pricing of this year's Fed easing cycle remains on the low side.” 

Euro steadies after French election shock

EUR/USD traded largely flat at 1.0761, after falling as low as 1.0733 on Monday, a level last seen on May 9, after the shock news that French President Emmanuel Macron called a snap election following gains by the far right in European Parliament elections.

“Macron's government was already struggling with fiscal consolidation, and the concern is now that any National Rally  government will follow a Trump-esque approach to fiscal consolidation – i.e., trying to grow its way out of the problem,” said analysts at ING. 

“EUR/USD is going to struggle to rally this month. We suspect it will continue to trade around the 1.07/08 area, with downside risks.”

GBP/USD fell 0.1% to 1.2719, following the release of labor data that showed a decline in U.K. employment.

The U.K. unemployment rate rose to 4.4% in April, from 4.3% the prior month, while the claimant count surged over 50,000 in May, many more than the expected 10,000.

This could provide the Bank of England with incentive to start cutting interest rates later this month, but average earnings (including bonuses) rose by 5.9% in April, more than the expected 5.7%, suggesting that wage-driven inflation remains an issue.

“Given the Bank Of England's lack of opportunities to communicate with the market because of the 4 July election, we will have to wait on the 20 June BoE rate meeting for major updates here,” said ING.

BOJ to cut bond purchases?

In Asia, USD/JPY traded 0.2% higher to 157.32, ahead of a Bank of Japan meeting on Friday.

Investors expect a reduction in the central bank's monthly government bond purchases, potentially as early as this meeting.

USD/CNY rose 0.1% to 7.2542, remaining close to six-month highs as traders fret about an uneven economic recovery.

 

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