Dollar stabilizes amid expected U.S. inflation data

(MENAFN) The dollar exhibited stability on Tuesday as traders eagerly anticipated forthcoming US inflation data, which is expected to play a pivotal role in shaping expectations regarding US interest rates. Market participants closely monitored the yen's performance, which hovered near its lowest level in two weeks, prompting concerns about potential government intervention to stabilize the currency.

Traders have adjusted their forecasts for interest rate cuts this year in response to heightened inflationary pressures, revising expectations from a projected 150 basis point cut at the beginning of the year to a more modest 42 basis points cut anticipated over the course of the year. Notably, markets now anticipate a 60 percent likelihood of interest rate cuts in September, compared to 75 percent just a month ago, as indicated by CME's Fed Watch service.

All eyes are set on Wednesday's release of the consumer price index (CPI), with analysts forecasting a 0.3 percent month-on-month increase in core consumer prices for April, a slight dip from the previous month's 0.4 percent. Additionally, investors are eagerly awaiting the release of the US Producer Price Index (PPI) data later on Tuesday, which will provide insights into whether inflation is trending towards the Federal Reserve's target.

Against this backdrop, the euro experienced a modest decline to USD1.0786, despite registering a notable one percent increase so far this month. Similarly, the British pound traded at USD1.2559, reflecting an approximate 0.5 percent gain thus far in May.

The dollar index, which gauges the performance of the US currency against a basket of six major currencies, stood at 105.27 points in the latest trading session. Notably, the index recorded a marginal one percent decline over the course of the month, reflecting the market's cautious sentiment amidst evolving inflationary dynamics and interest rate expectations.



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