Given that the majority of the world was still recovering from the pandemic and the U.S. economy was surprisingly robust, the dollar has performed better this year when it comes to the narrative of U.S. exceptionalism.
A recent change in attitude from the worry that the U.S. central bank might even hike rates again to contain inflation perceived as “sticky” has led to the expectation that the Federal Reserve will drop rates by 25 basis points as early as September and possibly again in December.
weaker CPI, weaker retail sales, and softer industrial production are anticipated from this week’s report. The dollar should be affected by these factors since they support the maintenance of the interest rate ceiling, according to Marc Chandler, chief market analyst at Bannockburn Global Forex in New York.
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He remarked, “We should also get more data that Europe is recovering in the coming days,” specifically mentioning the German economic confidence indicator, or ZEW.
According to a Reuters survey, the consumer price index on Wednesday is predicted to reveal that core CPI increased by 0.3% month over month in April, down from 0.4% the previous month.
Fed Vice Chairman Phillip Jefferson stated on Monday that he supports keeping rates unchanged until it is evident that price pressures are decreasing, even if the market expects inflation to slow down.
On Wednesday, retail sales in the United States will be released, followed on Thursday by industrial production.
At the Fed’s September meeting, markets are pricing in an 80% chance of a rate cut, with reductions of about 44 basis points (bps) in
Fed officials made a variety of comments last week as policymakers argued over whether interest rates were high enough. A study conducted on Friday indicated that consumers’ expectations for inflation have increased, which may complicate matters further.
Investors want proof of just how persistent inflation is, as recent data suggests the economy is slowing down from the strong growth of 2023.
The euro was up 0.33% at $1.0804, while the dollar index, which compares the value of the US dollar to a basket of six rivals, down 0.24% to 105.08. The pound was up 0.31% at $1.2625 on Tuesday ahead of labor market statistics.
“For the wheels to truly fall off of the U.S. dollar, incoming data needs to point to disinflation, not just pockets of weakness here and there,” said Matt Simpson, senior market analyst at City Index.