Dollar Rises on CPI Expectations, Euro Awaits ECB Meeting

he U.S. dollar edged higher on Tuesday, trading within tight ranges ahead of the highly anticipated November consumer inflation report, while the euro weakened slightly in anticipation of the European Central Bank’s upcoming meeting.

The dollar index, which measures the greenback against a basket of six other currencies, was up 0.2%, trading at 105.995.

CPI Takes Center Stage

Currency markets have been relatively subdued this week, with the focus squarely on Wednesday’s U.S. consumer inflation data for November. The report is expected to provide critical insights into the Federal Reserve’s monetary policy trajectory.

Analysts anticipate the headline annual inflation rate to rise to 2.7% in November from 2.6% in October. Meanwhile, core inflation, which excludes volatile components like energy and food, is forecast to remain steady at 3.3%.

Since September, the Federal Reserve has reduced interest rates by a total of 75 basis points. Markets widely expect another 25 basis point cut at the Fed’s meeting on December 17–18. However, any signs of inflation moving closer to the Fed’s 2% target could lead markets to adjust these expectations.

“We doubt investors will want to move the DXY too far lower ahead of tomorrow’s US CPI release and would expect 105.40/60 support to hold into the close,” ING analysts stated in a note.

Euro Weakens Ahead of ECB Meeting

In Europe, the EUR/USD pair fell 0.2% to 1.0530 following the confirmation of German inflation data, which remained unchanged at 2.4% year-over-year in November. This comes ahead of Thursday’s European Central Bank meeting, the final one for 2024.

The ECB is widely expected to implement a 25 basis point rate cut, marking its fourth cut this year.

“This cut appears to be a reality for the market,” ING noted. “However, the press conference may open the debate for more cuts later, implying a dovish outcome for the EUR.”

GBP/USD traded flat at 1.2748, with the British pound showing resilience after data revealed a sharp decline in job vacancies in the U.K. Job postings on recruitment platform Indeed fell by 23% year-over-year as of November 29, pointing to a slowdown in the British economy in the latter half of 2024.

The Bank of England cut interest rates for the second time in November and is expected to ease monetary policy more gradually than its global counterparts in 2025.

Australian Dollar Nears Four-Month Lows

The Australian dollar remained near four-month lows, with USD/AUD trading lower after the Reserve Bank of Australia decided to keep interest rates steady at 4.35% during its December meeting. The central bank cited stable underlying inflation and tight labor market conditions as reasons for its decision.

USD/CNY rose to 7.2612 following underwhelming trade data from China. While the nation’s trade balance increased in November, both exports and imports fell short of expectations. The focus now shifts to the Central Economic Work Conference, starting Wednesday, where policymakers are expected to discuss dynamic fiscal stimulus and accommodative monetary strategies for 2025.

USD/JPY increased 0.3%, settling at 151.59, after earlier touching 151.71 for the first time since November 28. Traders are closely watching developments in Japan’s economic indicators and the Bank of Japan’s upcoming decisions.