U.S. Dollar Falls as Investors Await Inflation Data, China’s Yuan Slips
The U.S. dollar fell slightly on Tuesday as investors awaited U.S. inflation data, while China’s yuan slipped to a six-month low after the central bank lowered a short-term lending rate to boost the economy.
The euro was up 0.42% to $1.08 on Tuesday, after touching its highest since May 23 earlier in the session at $1.081. That helped push the dollar index, which measures the currency against six peers, down 0.3% to 103.27.
U.S. consumer price inflation (CPI) data is due out at 12:30 GMT (8:30 a.m. ET) and could influence the Federal Reserve as it starts its two-day policy meeting, with an interest rate decision due on Wednesday.
“The market is priced for a pause from the Fed tomorrow,” said Jane Foley, head of FX strategy at Rabobank. “What’s going to be interesting today is looking at that CPI, especially the core number, because there will be a bit of fine tuning (of market expectations) ahead of the Fed’s meeting.”
The Fed lifted its target rate range to 5% to 5.25% in May but traders think there is a 77% chance the Fed will hold it steady this week. Traders broadly expect another 25 bp hike in July, after Fed officials hinted at a so-called skip.
The yuan, meanwhile, weakened to 6.7162 per dollar in onshore trading, its weakest level since December 2021. The central bank lowered the one-year loan prime rate (LPR) by 15 basis points to 4.45%, the first cut since April 2020.
The LPR is a benchmark lending rate for commercial banks. The cut is seen as an attempt by the central bank to support the economy, which is facing headwinds from a slowdown in China’s property market and the ongoing trade war with the United States.
The Chinese government has set a growth target of 6.5% for 2023. However, many economists believe that the economy is likely to grow at a slower pace this year.
The weaker yuan could put pressure on other Asian currencies, such as the Japanese yen and the South Korean won