In the early hours of European trade on Tuesday, the U.S. dollar exhibited minimal movement as investors awaited the release of critical inflation data that could shape the trajectory of U.S. monetary policy. Meanwhile, the British pound strengthened, fueled by ongoing healthy wage increases for U.K. workers.
As of 03:10 ET (08:10 GMT), the Dollar Index, tracking the greenback against a basket of six major currencies, remained relatively flat at 105.516.
U.S. CPI Data and Trading Sentiment
Trading activity has been range-bound as investors cautiously anticipate the October U.S. Consumer Price Index (CPI), set to be released later in the session. The CPI figures are anticipated to influence trading sentiment leading up to the December Federal Reserve meeting.
Analysts expect the year-over-year gain for the headline CPI to decrease to 3.3% from September’s 3.7%. Additionally, a marginal increase of 0.1% is projected for the month, compared to the 0.4% rise observed in the prior month.
Federal Reserve officials, including Chairman Jerome Powell, have cautioned about persistent inflation, suggesting that the central bank may implement further rate hikes if prices prove resistant to falling. Any indications of stubborn inflation could strengthen expectations for additional rate hikes, positively impacting the U.S. dollar.
Strong UK Wage Growth Boosts Sterling
In the European market, the GBP/USD pair rose by 0.2% to 1.2296 following the release of data indicating slightly slower wage growth in the UK for the three months ending September. Despite the slight dip to 7.7% from the previous month’s 7.9%, earnings excluding bonuses remained high, posing concerns for the Bank of England in its efforts to manage elevated inflation levels.
The UK unemployment rate held steady at 4.2% in September, signaling a resilient labor market even after a series of interest rate hikes.
Eurozone and Yen Dynamics
The EUR/USD pair rose by 0.1% to 1.0707 in anticipation of the latest quarterly eurozone growth numbers. The third-quarter Eurozone GDP is projected to show a marginal decline of 0.1% on a quarterly basis and a modest 0.1% increase on an annual basis. European Central Bank President Christine Lagarde has emphasized that interest rates will remain restrictive for several quarters due to persistent inflation.
In Asia, USD/JPY edged lower to 151.64, with the Japanese yen hovering around its weakest level in a year against the U.S. dollar. However, Japanese authorities have reiterated their willingness to intervene in foreign exchange markets, preventing further losses. A break below the recent low of 151.92 would mark a fresh 33-year low for the yen.
USD/CNY rose 0.1% to 7.2942, with the yuan remaining weak as lending activity in China slowed down further in October, according to recent data.