By Peter Nurse
Investing.com — The U.S. dollar traded higher Tuesday, finding supporters ahead of the release of key inflation data later in the week which could renew expectations for prompt tightening by the Federal Reserve.
At 2:50 AM ET (0750 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 95.685.
The dollar has made something of a comeback this week, after a strong bout of selling last week, as Friday’s very strong jobs report, with 467,000 nonfarm payrolls recorded, fortified rate hike expectations for March.
“A surprisingly strong U.S. January NFP jobs report provided some support to the dollar and reminded us that the Fed is still likely to lead the hawkish re-assessment of central bank policy underway around the world,” said analysts at ING, in a note.
These expectations are likely to be further bolstered by Thursday’s U.S. consumer price index release.
“The U.S. CPI figure … is the main event for this week and it is set for another upbeat figure,” said analysts at Nordea, in a note. “The consensus points to a headline of 7.3% with underlying prices to reach 5.9%. Our models point towards an upside risk.”
Futures markets are pricing an almost 1-in-3 chance of a 50 basis point rate rise in March, and a CPI number at a four-decade high would boost this likelihood, further supporting the dollar.
Elsewhere, EUR/USD fell 0.3% to 1.1401, dropping further back from its highest level since mid-January which it reached late last week after the European Central Bank hinted at policy action in the form of rate hikes later in the year.
European Central Bank President Christine Lagarde attempted to rein in these expectations in a speech late Monday, acknowledging that Eurozone inflation risks are on the rise but adding price pressures could still subside before becoming entrenched in expectations.
“We have to bear in mind that demand conditions in the euro area do not show the same signs of overheating that can be observed in other major economies,” Lagarde told the European Parliament’s committee on Economic and Monetary Affairs.
Additionally, GBP/USD fell 0.1% to 1.3525, USD/JPY rose 0.3% to 115.52, while the risk-sensitive AUD/USD fell 0.1% to 0.7117.
USD/PLN rose 0.4% to 3.9790 and EUR/PLN climbed 0.1% to 4.5358, with Poland’s central bank likely to raise borrowing costs later Tuesday for a fifth consecutive month in an attempt to curb record inflation levels.
Dollar Finds Support; Inflation Data Looms Large
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