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Dollar Edges Higher; Inflation Data in Focus

The dollar edged higher in early European trade Tuesday, but activity remains subdued ahead of this week’s key U.S. inflation release after Friday’s lackluster payrolls number.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 90.093, not far above 89.533, a 4 1/2-month low touched late last month.

EUR/USD traded 0.1% lower at 1.2177, still above its three-week low of 1.2104 set on Friday, while USD/JPY gained 0.2% to 109.48, after Japan’s GDP contracted 1% quarter-on-quarter and 3.9% year-on-year for the first quarter of 2021. GBP/USD fell 0.2% to 1.4150 and the risk-sensitive AUD/USD was down 0.1% at 0.7745.

Friday’s U.S. nonfarm payrolls release showed an increase of 559,000 jobs last month after a revised 278,000 gain in April, below the 650,000 gain expected.

While this softer-than-expected release eased the immediate pressure on the Federal Reserve to rein in its ultra-easy monetary policies, there still remain concerns that the central bank will shortly start discussing tapering asset purchases given the high levels of inflation.

This view was reinforced by comments from U.S. Treasury Secretary Janet Yellen over the weekend that higher interest rates, and higher inflation levels, would be good for the economy.

With this in mind, investors are now looking to consumer price data on Thursday for fresh direction, one of the last major pieces of economic data ahead of the next Fed meeting on June 15-16.

“Remember, last month saw the dollar gently offered on a softer NFP, with the FX and Rates markets then looking through the spike in US CPI figures for April. Will the same happen again this week? Will dollar bears survive what could be the peak headline CPI reading of the cycle, which could come in near 4.8-5.0% YoY,” asked analysts at ING, in a note.

Also on investors’ radar is Thursday’s policy decision by the European Central Bank, although the central bank is widely expected to keep in place its ultra-loose monetary policies.

Euro-area inflation is running at 2%, marginally above the ECB’s goal but a far cry from the levels seen across the Atlantic, and gross domestic product is seen growing 4.3%, only reaching its pre-crisis level next year.

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