The dollar remained stable ahead of important inflation data expected later today. Following last week’s significant risk-off move across markets, sentiment toward regional currencies remained cautious, and the unwinding carry trade with the yen added to the pressure.
Amidst ongoing worries about a slowdown in the largest economy in the region, uncertainty ahead of additional economic signals from China also added to the burden.
Little movement was seen in the dollar index and dollar index futures during London trade, continuing the weak overnight performance caused by large bets being retracted in anticipation of the inflation data.
The Federal Reserve will have more leeway, lowering interest rates if the consumer price index data, scheduled for Wednesday, shows that inflation moderated in July.
Lower readings won’t help the US dollar. A slowdown in US inflation data could also increase concerns about the likelihood of a US recession, would encourage the Fed to lower interest rates even more.
Traders are divided on the much-anticipated rate drop of 25 or 50 basis points, and the July inflation report will likely influence the outcome.
In addition to the inflation data, this week’s retail sales and industrial production data are also set for release. The release of the wholesale inflation data on Wednesday is the consumer price index. Investors will be questioning whether the U.S. economy will recover in particular as they closely watch these two sets of data
At its July meeting, the central bank decided not to raise interest rates, hinting that a reduction may occur in September, contingent on the evolution of inflation and the labor market.
In light of recent market turbulence and economic unpredictability, doubts have surfaced regarding the Fed’s decision to start reducing rates earlier to prevent a hard landing. The markets are generally expecting one in September.
