As investors anticipated inflation statistics for fresh indications of whether price pressures are receding and what that means for future Federal Reserve rate hikes, the dollar declined on Tuesday.
The consumer price index for March is anticipated to show headline inflation increasing by 0.2% while core inflation increased by 0.4%. (USCPI=ECI), (USCPF=ECI)
According to Edward Moya, senior market analyst at OANDA in New York, “a lot of traders are focused on this inflation data. “Everyone is trying to gauge if the disinflation process is resuming, which makes the Fed’s task more difficult.”
At its meeting on May 2-3, the Fed is anticipated to raise rates by an additional 25 basis points before halting in June. Also, markets are factoring in a Fed rate cut by the end.To 102.08, the dollar index decreased by 0.36%. Up 0.52% to $1.0918, the euro.
A spike in European bond yields on Tuesday, as traders in the area resumed trading after markets were closed on Friday and Monday for the Easter vacation, is also likely to have helped the euro.
According to Simon Harvey, head of the Forex analysis at Monex Europe, algorithms that trade currencies based on the difference between European and American interest rates may have sold euros for dollars as US Treasury yields increased after jobs data while European bond markets were closed.
Tuesday saw a strong increase in European bond yields as they caught up following the halt. GWD/EUR
Harvey remarked, “There’s just this catch-up effect that comes through.
Moreover, the dollar fell against the yen after rising against it on Monday.