On Wednesday, the dollar fell to a one-month low against the euro as traders awaited a crucial U.S. inflation report that could influence Federal Reserve policy decisions. Lower Treasury yields contributed to the dollar’s decline, with investors closely monitoring the upcoming inflation figures.
While the yen saw a slight uptick against the greenback, it remained near a two-week low, largely due to the yield gap between Japanese bonds and their U.S. counterparts, encouraging selling of the Japanese currency.
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The euro strengthened by 0.1% to $1.0826, reaching its highest level since April 10 at $1.0835 earlier in the session. The U.S. dollar index, which measures the dollar against six major currencies, including the euro, slipped 0.11% to 104.90, marking its lowest level in one and a half weeks.
Analysts pointed to downward risks for the dollar following Tuesday’s U.S. producer prices data, emphasizing the significance of the core services CPI component in determining market sentiment.
Market expectations anticipate a 0.3% month-on-month increase in core consumer prices for April, according to a Reuters poll. Deutsche Bank strategist Alan Ruskin highlighted the importance of more than a single modest surprise to significantly sway market sentiment, particularly emphasizing the potential impact of a large upside miss on the CPI.
Federal Reserve Chair Jerome Powell expressed optimism about the U.S. economy’s trajectory on Tuesday, foreseeing sustained growth above trend and expressing confidence in inflation trends, despite recent data fluctuations.
The dollar retreated by 0.29% against the yen on Wednesday, although it had reached as high as 156.80 overnight. In contrast, Japanese long-term yields stood at just 0.955%, following a hawkish signal from the Bank of Japan earlier in the week.
Recent interventions by the Bank of Japan and the Japanese finance ministry to counter the dollar’s surge on April 29 and subsequent aggressive yen buying underscored concerns about currency fluctuations.
Elsewhere, the yuan rebounded from a two-week low against the dollar on reports of potential measures to address China’s housing market challenges. This positive sentiment outweighed U.S. President Joe Biden’s decision to impose significant tariff increases on various Chinese goods.
Antipodean currencies, including the Australian dollar, also benefited from optimism surrounding China’s economic outlook, with the Australian dollar rising by 0.28% to $0.6648.