Dollar Holds Steady Ahead of Key Inflation Data

The U.S. dollar maintained stability near a seven-week high on Thursday, ahead of an important inflation report, while the euro continued to hover near recent lows.

At 04:15 ET (08:15 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, was largely unchanged at 102.684, close to the highs it reached earlier in the week.

CPI Data in Focus

On Thursday, the dollar traded within a narrow range, remaining at elevated levels following a robust payrolls report released on Friday that led the market to largely dismiss the possibility of a 50 basis point cut in November.

Minutes from the Federal Reserve’s September meeting indicated that policymakers supported the 50 basis point cut implemented at that time, but did not commit to the pace of potential future easing.

Analysts noted, "The September FOMC minutes revealed no urgent push from the Fed to lower rates, even after the 50 bps cut. The sentiment seemed to indicate that the inflation concerns had passed, unemployment was rising, and a risk management approach called for a reassessment of policy."

Attention shifted toward the consumer price index, set to be announced later in the day, as this data is likely to influence the Fed’s future decisions on interest rates. Expectations are that the headline CPI will show a slight easing, while core CPI remains stubbornly high.

Traders were pricing in a 79.5% chance of a 25 basis point cut in November and a 20.5% likelihood of maintaining rates.

Growth Concerns in Germany

In Europe, the EUR/USD pair remained mostly unchanged at 1.0939 following a report that German retail sales rose by 1.6% in August compared to the previous month, slightly better than the 1.5% increase observed before.

However, this positive news was dampened by the German government’s downgrade of its 2024 growth outlook. Economy Minister Robert Habeck indicated a projection of a 0.2% contraction in GDP for this year, down from an earlier forecast of 0.3% growth, suggesting that Germany is bracing for its first two-year recession in nearly two decades.

The European Central Bank is scheduled to meet next week and is expected to implement further policy easing after already reducing rates twice this year.

Meanwhile, the GBP/USD pair climbed by 0.1% to 1.3081 in anticipation of the Bank of England’s latest credit conditions survey, with traders seeking insights into the bank’s future rate-cutting trajectory.

Struggles of the Japanese Yen

The USD/JPY exchange rate dipped 0.1% to 149.13, after reaching a two-month high earlier. The Japanese yen received little support from unexpectedly high producer prices, as markets speculated that the Bank of Japan might struggle to raise interest rates further.

Additionally, the USD/CNY pair fell 0.1% to 7.0771, with the yuan recovering some of its recent losses amid expectations of additional stimulus measures from the Chinese government to bolster growth.

China’s finance ministry announced plans to hold a briefing on Saturday to detail fiscal stimulus initiatives, following a series of monetary stimulus measures that fell short of market expectations.