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Dollar Edges Higher Ahead of Key Inflation Data, Set for Weak Quarter
The US dollar edged higher in early European trade on Friday, but is set to record a second consecutive quarterly loss ahead of key US inflation data. The Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 101.860, not far off its lowest level since early February. The index is down 1.3% year to date, extending a 7.7% fall in the fourth quarter of 2022.
Traders are reassessing their view of future Federal Reserve moves amid the turmoil in the US banking sector and now see US interest rates as close to peaking, which would erode the dollar's yield advantage. However, this view is dependent on there being signs that the Fed is winning its battle against inflation.
The Fed's favorite gauge of inflation, the core PCE price index, is due later in the session and is expected to show a rise of 0.4% from the prior month and 4.7% for the year through February. The release of Euro zone CPI for March could also impact the dollar's performance, with potential upside to the expected 7.1% annual rise given Thursday’s German numbers release.
GBP/USD rose 0.1% to 1.2392 after data showed that Britain's economy grew in the fourth quarter of last year. Risk-sensitive AUD/USD traded flat at 0.6706, USD/JPY rose 0.4% to 133.12, and USD/CNY fell 0.1% to 6.8645 after data showed that overall Chinese business activity grew at its fastest pace in over a decade, even if the recovery was uneven.
In conclusion, with the dollar set to record a second consecutive quarterly loss, investors are closely monitoring key inflation data as they reassess their view of future Federal Reserve moves. The release of Euro zone CPI for March and US core PCE price index data are expected to impact the dollar's performance in the near term.
