June 11 2024: The U.S. dollar pulled back on Tuesday, falling from a one-month high as yields declined ahead of key U.S. inflation data and the Federal Reserve’s policy meeting.
At 04:15 ET (08:15 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, was down 0.3% at 104.795, after hitting 105.39 on Monday, its highest level since May 14.
Dollar Retreats Ahead of CPI and Fed Meeting
The dollar had been boosted by Friday’s stronger-than-expected jobs report, which was supported by higher Treasury yields as traders reduced expectations for Fed rate cuts this year.
However, yields retreated on Tuesday, causing the dollar to drop as traders took a more cautious approach ahead of the release of crucial U.S. consumer price data and new Federal Reserve interest rate forecasts on Wednesday.
The May CPI is expected to show a modest increase of 0.1% for the month, translating to an annual rise of 3.4%—still significantly above the Fed’s 2% medium-term target.
Traders continue to anticipate some monetary easing this year, though a rate cut in September is now seen as a 50:50 chance.
This inflation data will be released just before the Federal Reserve concludes its latest two-day policy meeting, with no change in interest rates widely expected.
Traders will be watching to see if Fed officials adjust their expectations for the number of interest rate cuts this year, a move that seems likely given they projected three reductions in their last forecast.
“Notably, the dollar has ended lower on the day after the last four consecutive FOMC meetings, largely due to 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 dipping to 1.0733 on Monday, a level last seen on May 9, following the surprising news that French President Emmanuel Macron called a snap election after far-right gains 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—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.”
Pound Falls Amid Weak UK Employment Data
GBP/USD fell 0.1% to 1.2719 after labor data showed a decline in U.K. employment.
The U.K. unemployment rate rose to 4.4% in April, from 4.3% the previous month, while the claimant count surged by over 50,000 in May, significantly higher than the expected 10,000.
This could prompt the Bank of England to consider cutting interest rates later this month. However, average earnings (including bonuses) increased by 5.9% in April, exceeding the expected 5.7%, indicating that wage-driven inflation remains a concern.
“Given the Bank of England’s limited opportunities to communicate with the market before the July 4 election, we will have to wait until the June 20 BoE rate meeting for significant updates,” said ING.
Yen Moves Higher as BOJ Meeting Approaches
In Asia, USD/JPY traded 0.2% higher at 157.32, ahead of a Bank of Japan meeting on Friday.
Investors are anticipating a reduction in the central bank’s monthly government bond purchases, potentially as early as this meeting.
Yuan Stays Near Six-Month Highs
USD/CNY rose 0.1% to 7.2542, remaining close to six-month highs as traders remain concerned about an uneven economic recovery in China.
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