The Dollar Index, which tracks the US currency against a basket of six other currencies, fell slightly after earlier reaching its highest level since May 14 at 105.17, following a 0.5% gain in the previous session.
A series of economic data that came in earlier than expected, along with hawkish comments from several Federal Reserve officials, led to a sharp rise in bond yields, driving a rush toward safer assets and supporting the dollar.
There is a growing belief that the Federal Reserve will not cut interest rates anytime soon, and traders are awaiting confirmation from the Personal Consumption Expenditures (PCE) data on Friday, the Fed’s preferred inflation gauge, that inflation remained steady during April. Before that, a revised reading of the first-quarter GDP is due later on Thursday, expected to show continued resilience in the US economy.
The EUR/USD pair also rose to its highest level in two weeks ahead of the release of business confidence data in the Eurozone later in the session and before the Eurozone Consumer Price Index (CPI) release at the end of the week. The European Central Bank (ECB) is widely expected to announce a rate cut next week, but uncertainty about the subsequent steps may be influenced by Friday’s inflation release.
In Asia, the USD/JPY trading fell to 156.5, but the pair remained close to its recent highs, amid continued weakness in the yen. The focus now is directly on the upcoming inflation reading from Tokyo, scheduled for release on Friday, to gain further insights into the Japanese economy. Any signs of increasing inflation could bring about a rate hike.
