May 15 2024: The dollar fell to a one-month low against the euro on Wednesday, driven by lower Treasury yields as traders awaited a crucial U.S. inflation report expected to influence Federal Reserve policy.
The euro inched up 0.03% to $1.0823 during Asian trading hours, briefly reaching $1.0828, its highest level since April 10. Meanwhile, the U.S. dollar index, which measures the dollar against six major currencies, dropped 0.11% to 104.94, after hitting a 1-1/2-week low of 104.92 earlier.
The benchmark long-term U.S. Treasury yield fell to 4.4414%, extending an overnight retreat of 3-1/2 basis points.
The yen hovered near a two-week low due to the ongoing yield gap between Japanese and U.S. bonds, encouraging selling of the Japanese currency. The dollar edged back 0.12% to 156.245 yen on Wednesday, having reached 156.80 overnight.
Expectations for the core consumer price index (CPI) report, set for release on Wednesday, are for a 0.3% month-on-month rise in April, down from 0.4% in the previous month, according to a Reuters poll.
Deutsche Bank strategist Alan Ruskin noted that market reactions might be muted unless there is a significant deviation from the forecast. However, a substantial upside surprise of 0.5% or more could lead to a major repricing of interest rates and a significant surge in the dollar.
Fed Chair Jerome Powell expressed confidence in the U.S. economy on Tuesday, predicting continued growth and a decline in inflation, despite recent data suggesting otherwise. Higher-than-expected consumer prices in the first quarter led to adjustments in the expected pace of Fed rate cuts, now anticipated to be about 45 basis points this year.
In other currency movements, the yuan recovered from a two-week low against the dollar, bolstered by a report of a potential plan to ease China’s housing glut. The dollar dropped 0.24% to 7.2232 yuan in offshore trading, after hitting 7.2460 overnight.
Optimism about China also benefited Antipodean currencies, with the Australian dollar gaining 0.32% to $0.6648 and the New Zealand dollar climbing 0.37% to $0.6062.