Dollar Retreats as Markets Await Key US Inflation Data
The US dollar softened on Wednesday, consolidating against its major counterparts ahead of the release of a crucial US inflation figure later in the session.
As of 04:45 ET (09:45 GMT), the Dollar Index, which measures the greenback against six other currencies, fell 0.4% to 106.500, retreating further from last week’s two-year high.
Dollar Holds Ground Ahead of PCE Data
Currency traders appear to be locking in profits on the dollar ahead of the October Personal Consumption Expenditures (PCE) price index, set to be released later today before US markets close for the Thanksgiving holiday.
The dollar, often seen as a safe haven, recently gained support following President-elect Donald Trump’s threats to impose tariffs on Canada, Mexico, and China. These actions have reignited concerns over a global trade war and its potential to disrupt economic growth. The proposed measures are also viewed as inflationary for the US economy, possibly limiting the Federal Reserve’s ability to significantly reduce interest rates.
“The key focus of today’s session will be the US October core PCE deflator, forecasted to rise by 0.3% month-on-month,” analysts at ING noted.
“Although the market has largely shifted its focus away from US inflation, a stubbornly high reading could cast doubt on whether the Fed will proceed with a rate cut in December. The dollar is likely to hold recent gains, though month-end selling pressure remains a risk,” they added.
Euro Gains Slightly but Faces Economic Challenges
In Europe, EUR/USD edged up 0.3% to 1.0514, buoyed by the dollar’s weakness. However, the euro continues to struggle under the weight of a bleak economic outlook in the region.
Mixed Currency Movements Amid Economic Data and Policy Expectations
Data released earlier Wednesday revealed a decline in France’s consumer confidence index for November, as rising concerns about unemployment weighed on households.
The monthly business survey from INSEE reported that the sentiment indicator dropped to 90, down from a revised 93 in October.
ECB Policies and Sterling Strength
The European Central Bank has already implemented three rate cuts this year and is widely expected to lower rates once more in December.
Meanwhile, GBP/USD rose 0.3% to 1.2607, extending its recovery from last week’s six-week low.
“With one-week deposit rates at 4.75%, the highest among G10 currencies, sterling may be benefiting from inflows as markets evaluate the pace and scope of Trump’s policy agenda,” analysts at ING noted.
They added, “The Bank of England’s rate trajectory is aligning more closely with the Fed than the ECB, suggesting that sterling could continue to outperform the euro.”
Yen Gains on Safe-Haven Demand
USD/JPY dropped 1% to 151.58, with the Japanese yen supported by safe-haven flows and increasing speculation of a December rate hike in Japan.
Dollar-Yuan and Kiwi Dollar Movements
USD/CNY edged down slightly to 7.2505, though it remained close to a four-month high as concerns over potential tariffs from Trump added pressure to China’s already fragile economy.
NZD/USD climbed 0.9% to 0.5889, rebounding from multi-month lows. The recovery followed the New Zealand central bank’s decision to cut interest rates by 50 basis points and signal further easing next year, citing subdued domestic economic activity and declining inflationary pressures.
