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Dollar under pressure ahead of US inflation

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EURUSD remains firm at 1.0300 in Wednesday’s European session after a strong recovery on Tuesday.

The major currency pair consolidates as investors await the US Consumer Price Index (CPI) data for December later in the day. Investors will pay close attention to US inflation as it will influence market speculation for the Federal Reserve’s monetary policy outlook.

Month-on-month, headline inflation is estimated to have grown steadily by 0.3%. In the same period, the core CPI – which excludes volatile food and energy items – is expected to have risen by 0.2%, slower than the former release of 0.3%.

Economists expect the annual headline CPI to have accelerated to 2.9% from 2.7% in November, with core reading rising steadily by 3.3%.

Signs of stubborn price pressures could accelerate expectations that the Fed will avoid cutting interest rates this year.

Some slowdown in inflationary pressures is unlikely to boost Fed dovish bets as investors expect incoming policies under Trump’s administration, such as immigration controls, tax cuts, and tariff hikes, would fuel growth rate.

Ahead of the US inflation data, the DXY Dollar Index, which tracks the greenback’s value against six major currencies, slipped to near 109.00. The US Dollar corrected sharply on Tuesday after the release of the Producer Price Index (PPI) for December, which showed that producer inflation grew at a slower-than-expected pace.

According to the CME FedWatch tool, traders expect the Fed to cut interest rates just once this year, compared to two rate cuts projected by Fed officials in December’s Summary of Economic Projections (SEP).

Traders pare dovish bets after the release of the surprisingly upbeat US Nonfarm Payrolls (NFP) data for December on Friday.

EURUSD chart by TradingView

(Source: OANDA)