US Dollar Strengthens Ahead of Inflation Report; Euro Weakens on ECB Expectations
At 05:15 ET (10:15 GMT), the Dollar Index, which measures the dollar against a basket of six major currencies, was up 0.3% at 106.410.
US CPI in Focus
The dollar gained traction ahead of the much-awaited US inflation report, which could offer insights into the Federal Reserve's future interest rate decisions.
The report is expected to show a rise in the annual inflation rate to 2.7% in November, slightly above October’s 2.6%. A monthly increase of 0.3% is also anticipated, with the ‘core’ CPI (excluding volatile food and energy) forecast to remain at 3.3%, with a 0.3% monthly gain.
Analysts at ING noted, “If core inflation surprises to the upside, even with the market’s high expectations, the dollar could see further strength.” They also highlighted the market's 88% expectation of a 25-basis point rate cut next week, which could shift toward a more balanced outlook if inflation comes in hotter than expected.
Euro Weakens Ahead of ECB Decision
In Europe, EUR/USD saw a slight dip of 0.2%, reaching 1.0501, as traders braced for Thursday’s European Central Bank meeting—the final policy update of the year.
The ECB is widely expected to implement a 25-basis point rate cut, the fourth such cut in 2023. ING analysts pointed out that, although the rate cut is largely priced in, the accompanying press conference could signal further cuts, contributing to a dovish outlook for the euro.
GBP/USD also lost 0.3%, trading at 1.2731, while USD/CHF gained 0.1% to 0.8841, as expectations grew for another rate cut from the Swiss National Bank on Thursday.
China Considers Weaker Yuan
In Asia, USD/CNY rose by 0.4%, reaching 7.2809, after Reuters reported that China is contemplating a weaker yuan in 2025 to offset potential higher trade tariffs under a second term for Donald Trump.
Traders are also closely monitoring the ongoing Central Economic Work Conference in China this week, as Beijing plans to introduce more fiscal stimulus and adopt looser monetary policies in 2025.
Meanwhile, USD/JPY climbed 0.5% to 152.70 following data showing that Japan's wholesale inflation increased for the third consecutive month in November. Despite this, market participants remain divided on whether the Bank of Japan will raise interest rates at its upcoming policy meeting, with some speculating further hikes to combat inflation pressures.
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