The dollar, flat; attention to the US CPI after having no Powell clues

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The U.S. dollar traded virtually flat in Europe on Wednesday, with risk sentiment on the upside but with attention focused on the release of this week’s all-important U.S. inflation data.

At 03:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback’s performance against six other currencies, rose to 103.017, holding just above the week’s seven-month low.

The dollar has come under pressure since it hit a 20-year high in September as investors have begun to account for the end of the Federal Reserve’s rate hike cycle as inflation eases.

“The market is increasingly confident that the Federal Reserve will end the tightening cycle this quarter, starting an easing cycle in the third,” say analysts at ING in a note.

“The market doesn’t swallow the Fed’s story of having to take the fund rate up to 5.00% and then keep it there for a long time.”

On Tuesday, the chairman of the Federal Reserve, Jerome Powell, refrained from giving hints on monetary policy during a round table held in Sweden; and with Wednesday’s economic calendar virtually empty, attention is now focused on Thursday’s upcoming US CPI data.

Inflation is expected to have continued to decline from the previous month and General annual rate stands at 6.5% in December, compared to 7.1% previously. The core CPI figure, which excludes volatile prices such as energy and food, shows a Annual growth of 5.7%, down from 6.0% in November.

On the other hand, the pair EUR/USD It rose 0.1% to 1.0749, coming close to the previous session’s seven-month high of 1.0760, the GBP/USD traded flat at 1.2155, and the pair USD/JPY rose 0.2% to 132.44.

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The Bank of Japan is scheduled to meet next week and as the time approaches, speculation is mounting that the central bank could further adjust its benchmark bond yield target, after the Tokyo CPI It rose this week to levels not seen since 1981.

The pair USD/CNY fell 0.1% to 6.7743, with the Chinese yuan hovering around five-month highs on optimism following the relaxation of most anti-COVID restrictions in the country.

China’s December trade data will be released later this week and should be an indication of how the country’s economy is recovering, as authorities began removing travel restrictions during the last month of 2022.

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