On Monday, the dollar consolidated against other major currencies while traders anticipated US inflation data which may influence the Federal Reserve's decision on whether to decrease borrowing rates in 2024, and if so, by how much.

Traders responded to recent weaker-than-expected US labour market data and the Federal Reserve's announcement ruling out further interest rate increases by factoring in more easing from the Fed for the remainder of the year.

According to LSEG data, markets are currently estimating an approximately 80% probability of a rate cut by the Fed's September meeting. They expect a total reduction of around 40 basis points this year.

Comments from Fed officials last week were mixed as rate-setters discussed whether interest rates were high enough, Reuters reports.

The recent increase in consumers' inflation expectations, as indicated by a survey on Friday, could add complexity to the discussion.

Recent data suggests that the economy is slightly slowing down from the strong growth experienced last year. Investors are now seeking confirmation on the persistence of inflation amidst these changes.

This week, the market will have an opportunity to assess US inflation with the release of the producer price index (PPI) on Tuesday, followed by the consumer price index (CPI) on Wednesday.

“CPI is such a big, polarising event for the whole market,” stated ING FX strategist, Francesco Pesole.

“It's a possibility going into the event for the market to hold Dollars given the recent tendency for inflation data to surprise to the upside,” he continued.

There was only a slight change for the Dollar index, measuring the greenback against six rivals, which stood at 105.28 at the time of writing, after its first increase in three weeks. 

Furthermore, the Euro rose under 0.1% at $1.0780 on Monday, whilst Sterling rose 0.1% to $1.2537 before Tuesday’s labour market data.

“For the wheels to truly fall off of the US Dollar, incoming data needs to point to disinflation, not just pockets of weakness here and there,” stated Matt Simpson, senior market analyst at City Index.