The U.S. dollar slipped slightly lower Tuesday, but remained near recent highs on lingering optimism following the trade deal between the United States and China.
At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 101.410, after jumping around 1.6% on Monday to a one-month high.
Calm ahead of April CPI After weekend negotiations in Geneva, China and the U.S. agreed to a 90-day pause on tariffs imposed on each other, raising hope that the trade war between the world’s two largest economies will not lead to a tariff-led recession.
The agreement effectively sets a cap and floor on U.S. tariffs, with China’s tariff rate now at 30% - significantly lower than many had anticipated - providing greater clarity and reducing the peak of trade war uncertainty.
This saw the dollar post strong gains, but a degree of calm has now returned to the foreign exchange markets ahead of the release of the latest U.S. inflation number.
The April consumer price index is seen coming in at 2.4% on an annual basis, matching March’s level, a monthly rise of 0.3%.
The core figure, which excludes volatile energy and food prices, is expected to rise 0.3% on the month, and 2.8% on the year.
Many economists have warned that Trump’s tariff policies could refuel inflationary pressures in the U.S., while recent consumer surveys have indicated that household are bracing for greater price gains in the months ahead.
The “April core CPI data is still expected at a sticky 0.3% month-on-month and should feed into the narrative that the Fed is in no hurry to cut rates,” said analysts at ING, in a note.
“In fact, this month the terminal rate for the Fed’s easing cycle has been repriced to 3.50% from 3.00%. In particular, the market has shifted the pricing for the first Fed cut to September, which we still think could be a 50bp cut to kickstart another mini easing cycle.”
Euro recovers slightly In Europe, EUR/USD traded 0.2% higher to 1.1107, with the single currency recovering to a degree from its sharp 1.4% fall overnight.
There could also be some good news later in the session, from the release of the May German investor sentiment survey by the ZEW economic research institute.
The index is expected to rebound after tariff concerns sent morale to the lowest since the start of the Ukraine war.
“Tt looks as though EUR/USD has completed a first leg in a sequence of what could be a multi-year bull trend,” said ING. “We imagine this current corrective dip will find good buyers in the 1.1030/50 area, with outside risk to 1.0850. But this week’s decline makes us feel more comfortable about our year-end target of 1.13, which otherwise had looked too conservative.”
GBP/USD rose 0.3% to 1.3211, with sterling holding up despite data showing a further cooling in the U.K. work force.
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Data released earlier Tuesday showed a further slowdown in Britain’s jobs market, as employment fell and growth in wages cooled, with the latest unemployment rate rising to 4.5% in the three months to March, from 4.4%.
Asian currencies gain slightly In Asia, USD/JPY traded 0.4% lower to 147.87, with the safe haven yen rebounding a touch after being hit hard Monday by the announcement of a U.S.-China trade deal.
USD/CNY traded 0.1% lower to 7.1995, with the Chinese currency supported by the easing trade tensions between Washington and Beijing.
