Dollar sellers hit pause for US inflation data

The United States dollar found a measure of support on Tuesday as traders awaited US inflation data, which could potentially push the currency higher. The Australian dollar and New Zealand dollar both rose by nearly 1% in early Asia trade on Monday, with both currencies remaining steady. The euro also rebounded 0.7% overnight, reversing a Friday decline after strong US jobs data had lifted the dollar and interest rate expectations.

The euro against the dollar pair is now near the middle of a one-month range. Market sentiment remains bullish on the dollar, with the dollar index gaining this year as early expectations of US interest rate cuts shifted to bets on hikes after the conflict between the US and Iran fueled inflation. On Friday, the US reported a jobs report that exceeded forecasts, fueling speculation of an 85% chance of a Federal Reserve rate hike next month.

Economists surveyed by Reuters anticipate headline inflation to reach 3.9% year-over-year and core inflation to reach 2.8% in October. A hotter than expected inflation rate could strengthen the dollar, according to analysts. While markets have priced two US interest rate hikes by mid-2024, the outlook has become more uncertain due to recent turmoil in AI stocks following concerns over potential tighter regulation under a Democratic-controlled Congress, which could slow AI growth.

The British pound steadied near the midpoint of its range over the past 18 months at $1.3441 following the Bank of England's first interest rate hike in three years. The Japanese yen traded at 157.97 per dollar, benefiting from Japan's significant official intervention to defend the currency, which had fallen to four-decade lows against the dollar over the past six months.