The U.S. dollar traded largely unchanged in early European hours Wednesday, adopting something of a holding pattern ahead of the release of key inflation data as well as the minutes from the last Federal Reserve meeting.
At 03:20 ET (07:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded flat at 105.557, near a two-week low.
Dovish tone weighs on the greenback
The dollar has largely been on the backfoot of late, despite the increased geopolitical uncertainty caused by the weekend’s attack by the Palestinian group Hamas on Israel, as dovish comments from a few Federal Reserve officials have fueled hopes the U.S. central bank is nearing the end of its interest rate increases.
Atlanta Fed President Raphael Bostic added to growing feeling that the central bank may be done with its monetary tightening, saying on Tuesday, “I actually don’t think we need to increase rates anymore,” at a conference in Nashville, Tennessee.
This followed several Fed officials noting that recent rises in longer-term yields may help do the central bank’s work of tightening financial conditions to tackle inflation, meaning fewer interest rate hikes.
The minutes from the Fed’s September meeting are due later in the session, and traders will be studying them to see if they back up this more dovish shift.
U.S. inflation data looms large
However, these views will only hold weight if inflation continues to show signs of calming.
The week’s first big inflation report comes out later in the session, with the September producer price index expected to rise 1.6% for the year, and 0.3% from August, while core PPI is expected to rise 2.3% for the year and 0.2% for the month.
The key consumer price index for the same month is due on Thursday.
German inflation retreats in September
EUR/USD rose 0.1% to 1.0608, not far from Tuesday’s two-week top of 1.0620, as a consequence of the dollar weakness.
German inflation retreated in September, with consumer prices confirmed at an annual 4.5%, a drop from 6.1% the prior month.
Inflation should still land at the European Central Bank‘s target of around 2% by 2025 despite the violence in Israel weighing on commodity prices, ECB policymaker Francois Villeroy de Galhau said on Tuesday.
Elsewhere, GBP/USD edged lower to 1.2284, just off the previous session’s three-week high of 1.2303, after data from the Recruitment and Employment Confederation showed that British employers cut their job vacancies for the first time in more than two-and-a-half years in September and reduced their hiring again, adding to signs of a cooling in the labour market.
AUD/USD fell 0.1% to 0.6427, NZD/USD fell 0.2% to 0.6030 and USD/CNY rose 0.1% to 7.2988.
