Dollar Slips as Traders Await U.S. Inflation Data and Central Bank Meetings

SINGAPORE/LONDON—The dollar ticked lower on Tuesday and the yen regained some ground it had lost in the past two sessions as traders turned their focus to U.S. inflation data later in the day and a slew of central bank meetings ahead.

Market Overview

The dollar was 0.47 percent lower at 145.54 yen. The euro ticked up 0.22 percent to $1.0788, and sterling was steady at $1.2556. The dollar index, which tracks the greenback against six peers, was down 0.2 percent at 103.86.

Higher iron ore prices and a rebound in Chinese property shares helped nudge the Australian and New Zealand dollars higher. Forty years to the day after its float, the Aussie gained 0.3 percent higher to $0.6588. The currency started around $0.9000 and has averaged $0.7550 since 1983. It used to be used by global investors as a liquid proxy for commodities, and now for exposure to China, Australia’s largest trading partner. The New Zealand dollar rose 0.44 percent to $0.6148.

Eyes on CPI

U.S. inflation data, due at 1330 GMT, will frame Wednesday’s Federal Reserve policy decision. The dollar has been slipping since October’s benign U.S. inflation report but found footing on upbeat jobs data published on Friday. The Fed is considered certain to hold rates at 5.25 percent–5.50 percent this week, putting the focus on policymakers’ so-called dot plots on the rate outlook and Chair Jerome Powell’s press conference.

Economists polled by Reuters expect headline inflation to have been flat for November, and core inflation to keep steady at an annual pace of 4 percent—well above the Fed’s 2 percent target.

“It feels like a ‘risk on’ morning as everyone hopes for a soft CPI number to convince us that the hawkish comments from Fed policy makers are just hawkish comments,” said Kit Juckes head of FX strategy at Societe Generale. “Everyone is just waiting for the numbers.”

Markets are pricing in substantial rate cuts from central banks next year, and see a roughly 50 percent chance the first Federal Reserve rate cut will come as soon as March, according to the CME’s Fedwatch tool. Officials at the Fed, the Bank of England, and the European Central Bank at least publicly continue to about an extended rate plateau however.

Central Bank Meetings

Later in the week, the ECB, BoE, Norges Bank, and the Swiss National Bank all meet, with Norway considered the only possible hiker. There is also a risk the SNB could dial back its support for the franc in FX markets. The franc made an almost nine-year high on the euro last week and traded a little softer than that at 0.9461 francs to the common currency on Tuesday.

Conclusion

Traders are closely watching U.S. inflation data and upcoming central bank meetings as they anticipate potential market impacts. The dollar has been on a downward trend, and economists expect inflation to remain above the Fed’s target. Meanwhile, central banks are facing pressure to cut rates next year, with the possibility of the first Federal Reserve rate cut as early as March. The outcome of these events will shape market sentiment and investor decisions in the coming days.