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Dollar extends losing streak ahead of US CPI

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The USDJPY pair dropped sharply to 155.50 in early European trading on Wednesday, as the US Dollar extends its losing spell for the third trading session.

The DXY Dollar Index has dropped below 105.00 and investors are confident that the Federal Reserve will start reducing interest rates from September.

Speculation for the Fed to begin lowering the borrowing rate remains firm despite the Producer Price Index (PPI) growing faster than the consensus in April.

Investors remain confident of the rate cuts as Jerome Powell ruled out expectations of further policy-tightening. However, the Fed Chair emphasised keeping interest rates at their current levels for a longer period.

Meanwhile, investors await the US Consumer Price Index data for April later in the day.

The consumer inflation data will provide a clear picture over the interest rate outlook. Annual headline CPI is forecast to have softened to 3.4% from 3.5% in March. In the same period, the core inflation that strips off volatile food and energy prices is anticipated to decelerate to 3.6% from the prior reading of 3.8%.

Economists expect that monthly headline and core CPI have grown at a slower pace of 0.3% from the prior reading of 0.4%.

The US consumer inflation has remained higher-than-projected in all three months of the first quarter of this year. A continuation of the same could force traders to shift rate cut bets towards the end of the year or to the start of 2025.

On the Tokyo front, investors await Japan’s Q1 Gross Domestic Product (GDP) data on Thursday.

Economists expect that the Japanese economy contracted by 0.4% after expanding by 0.1% in the last quarter of 2023.

On an annualised basis, the Japanese economy is estimated to have contracted significantly by 1.5%. Weak GDP growth will raise concerns over Bank of Japan’s plan to continue the policy-tightening cycle.

(Source: OANDA)