By Rae Wee
SINGAPORE (Reuters) – The dollar fell on Tuesday after a slight rise in risk appetite, but remained tight against its peers ahead of key inflation data from major economies this week that markets look to for guidance on global interest rate forecasts .
Currency moves were largely subdued in Asia in the early hours after a quiet overnight session due to holidays in Britain and the United States, but the general mood was positive and world stocks strengthened.
The euro was slightly firmer at $1.0860, despite some dovish comments from European Central Bank (ECB) policymakers on Monday and data showing German business morale stagnated in May.
German inflation data due on Wednesday and data from the broader eurozone bloc on Friday will be watched for confirmation of an ECB rate cut expected next week, along with clues as to how quickly any subsequent central bank easing could come .
“The ECB is preparing for rate cuts next week, but what matters next is what happens next, and the lack of guidance from ECB speakers is telling in that sense,” said Rodrigo Catril, senior FX strategist at National Australia Bank (NAB ). .
“It’s clear that inflation dynamics will set the tone for what we can expect.”
Sterling remained near a more than two-month high, last buying at $1.2774, while the New Zealand dollar rose almost 0.1% to peak at $0.6155, its strongest level since mid-March .
Down Under, the Aussie rose 0.03% to $0.6657, with the country’s monthly consumer price index figures also released on Wednesday.
However, all this data will be a sideshow to the main focus for the markets on Friday when the US Core Personal Consumption Expenditure (PCE) Price Index report is released – the Federal Reserve’s preferred inflation measure – where it is expected to remain stable . monthly.
The outlook for US interest rates has been the dominant driver of currency moves in recent years, and recent data from the world’s largest economy has been mixed, boosting policymakers’ confidence about the pace and size of rate cuts expected this year. has been affected.
“The market is well priced for a favorable figure, and that needs to be delivered… if the Fed’s current lowered expectations for this year are to hold,” NAB’s Catril said.
“Any number that surprises on the upside will, in our view, trigger a pretty big reaction in the form of a rise in US yields and a rise in the dollar.”
Against a basket of currencies, the dollar fell 0.01% to 104.55.
Elsewhere, the yen languished around the 157 per dollar level and was last at 156.87 per dollar, although it was on track for its first monthly gain before 2024, helped by suspected intervention by Japanese authorities in late April and early May.
Inflation data from Tokyo, a leading indicator of national data, is also due to be released on Friday, which could provide further clues as to how soon subsequent rate hikes from the Bank of Japan (BOJ) could come.
BoJ Governor Kazuo Ueda said on Monday the central bank will proceed cautiously with the inflation target, noting that some challenges are “extremely difficult” for Japan after years of ultra-easy monetary policy.
In cryptocurrencies, bitcoin fell 0.47% to $69,255, while ether fell 0.2% to $3,882.20.
(Reporting by Rae Wee; Editing by Shri Navaratnam)
