The Dollar strengthened versus the Yen on Tuesday and remained steady against the Euro and Pound as investors awaited the US consumer inflation report due later in the day, which could influence expectations around Federal Reserve interest rate cuts.
A moderate inflation reading might reinforce predictions of a rate cut next month, whereas indications that tariffs imposed by US President Donald Trump are driving up inflation could lead the Fed to maintain current rates for the time being.
The Dollar rose 0.2% to 148.40 Yen at the time of writing, whereas the Euro ticked up slightly to $1.1622, while the Pound slipped to $1.3426.
The Dollar index, which tracks the currency against these three plus three other major currencies, held steady at 98.476, following a 0.5% gain over the last two sessions.
Before that, the Dollar had slipped as traders boosted expectations for Fed easing, prompted by President Trump’s dovish nominee to replace a Fed governor and similarly dovish potential candidates for Fed chair.
In addition, Fed officials have expressed growing concerns about weakness in the US labour market, indicating the possibility of easing as soon as September.
As it stands, traders assign roughly an 89% chance of a quarter-point rate cut on 17th September.
“Risk-reward heading into US CPI this week is for a modest USD bounce as any upside surprise will challenge market pricing of almost a full cut by September,” according to a note by TD Securities strategists
“A downside surprise, on the other hand, is unlikely to move Fed pricing and the USD as much,” they added. “The reasoning is that for the Fed to consider an outsized cut of 50 basis points, the catalyst will be further deterioration in the labour market and not a downside CPI miss.”
Economists surveyed by Reuters news agency anticipate core CPI to have increased by 0.3% in July, raising the annual rate to 3%.
Currency markets mostly shrugged off Trump’s decision to extend sharply higher tariffs on Chinese imports for another 90 days, a move that many traders had already anticipated.
As the United States and China work toward a deal to avoid triple-digit import tariffs, a US official told Reuters that chipmakers Nvidia and AMD have agreed to allocate 15% of their China sales revenue to the US government, aiming to secure exemptions for semiconductors.
The Yuan remained steady at 7.1917 per Dollar in offshore trading.
Elsewhere, the Australian Dollar traded at $0.6513, largely unchanged from Monday, following the Reserve Bank of Australia’s widely anticipated decision to cut interest rates by a quarter point.
The central bank pointed to slower inflation and a softer labour market but remained cautious about the possibility of additional rate cuts.