By Hannah Lang
NEW YORK (Reuters) -The dollar rose on Tuesday ahead of U.S. inflation data that could offer clues about the Federal Reserve’s monetary-easing path, while analysts assess the likely impact of President-elect Donald Trump’s policies when he begins his second term.
The Australian dollar dropped sharply against the U.S. dollar as the Reserve Bank of Australia softened its tone on the inflation outlook. Its rally the day before sparked by China stimulus pledges also tapered off after weak Chinese trade data.
Money markets are pricing an 86% chance of a 25-bps rate cut by the U.S. Federal Reserve next week, but investors will still be looking closely at an expected readout of Consumer Price Index data on Wednesday.
“Obviously the market’s kind of nervous about a stronger print, which might lead to a slightly more hawkish outlook on the Fed, or maybe a little bit of a repricing,” said Brad Bechtel, global head of FX at Jefferies. “I think the market is looking to see if CPI influences the decision on the December meeting, which right now is pretty much close to 100% priced, but not 100% priced.”
The U.S. dollar rose 0.47% to 151.925 yen. The dollar index, which measures the currency against the yen and five other major peers, rose 0.23% to 106.4.
Market participants see little action before a busy second half of the week with the U.S. data and European Central Bank policy meeting.
An ECB quarter-point cut is baked in, but investors will focus on the communication, which could provide clues about the central bank’s future moves.
