In the early hours of European trade on Tuesday, the U.S. dollar experienced a slight uptick, but it continued to hover close to a three-month low. Traders remained on edge as they awaited crucial inflation data, reinforcing the growing belief that the Federal Reserve has concluded its cycle of interest rate hikes.
As of 04:20 ET (09:20 GMT), the Dollar Index, gauging the greenback against a basket of six major currencies, inched up by 0.1% to 103.130, trading just above its lowest level since August 31.
November Downturn for the Dollar
The dollar was poised for a monthly loss exceeding 3% in November, marking its most significant monthly decline in a year.
Focus on PCE Inflation Data
The dollar’s retreat on Monday followed a report indicating a 5.6% decline in U.S. new home sales for October, signaling an economic slowdown. This fueled speculation that the Federal Reserve might initiate interest rate cuts in the first half of the next year, following the recent conclusion of its rate-hiking cycle.
However, the validity of this theory faces scrutiny with the imminent release of another U.S. inflation report on Thursday. The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, is anticipated to show a 0.1% rise in November, down from 0.4% in September. The core reading, excluding food and fuel costs, is projected to have increased by 3.5% year-over-year, a drop from 3.7% in the prior month, marking the lowest since mid-2021.
European Consumer Confidence and GBP/USD Movement
In Europe, the EUR/USD pair dipped by 0.1% to 1.0947 but remained close to mid-August highs, supported by consumer confidence data from Germany and France indicating a slight improvement. The latest EU inflation data, scheduled for later this week, is expected to reveal a moderation in pressures.
While GBP/USD saw a slight rise to 1.2626, trading near a two-month high, the focus remains on the U.S. inflation data’s potential impact on the yen and other major currencies.
Yen’s Response to Dollar Weakness
In Asia, USD/JPY traded marginally lower at 148.64, with the yen benefiting from the ongoing dollar weakness. However, the Japanese currency may face turbulence based on the outcomes of this week’s U.S. inflation data, alongside industrial production and retail sales figures from Japan.
Other Currency Movements
USD/CNY traded flat at 7.1526, with attention turning to PMI readings for November, scheduled for Thursday. Expectations suggest continued weakness in Chinese business activity following disappointing October readings. Meanwhile, AUD/USD saw a marginal increase to 0.6607 after unexpected contractions in Australian retail sales for October, prompting speculations of a potential downward trend in inflation in the coming months.