Dollar sellers hit pause for US inflation data

The United States dollar found support on Tuesday as traders waited for key inflation data from the Federal Reserve. This support came after a volatile few days, during which the dollar had dropped due to a decline in oil prices and gains in stocks, prompting investors to move into riskier assets. The Australian dollar and New Zealand dollar also experienced gains, with the Australian dollar rising nearly 1% to $0.6921 and the New Zealand dollar reaching $0.5624.

Meanwhile, the euro strengthened by 0.7% to $1.1220, suggesting that market sentiment had shifted back towards riskier assets. The dollar index has gained significantly this year, as initial expectations for US interest rate cuts shifted to predictions of hikes following the escalation of the US-Israeli war in Iran, which drove up energy prices and fueled inflation.

Economists forecast headline inflation to reach 3.9% and core inflation to 2.8% in October, with any readings above these expectations likely to bolster rate hike expectations and potentially lift the dollar.