Dollar edges higher ahead of PPI; sterling rises on wage data

Investing.com - The U.S. dollar edged higher in tight trading ranges Tuesday, as traders awaited the release of the July producer price index, the first of the week’s inflation double bill, as a guide to future Federal Reserve monetary policy decisions.

At 05:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 103.072, extending a sluggish overnight performance.

Dollar awaits PPI release

The producer price index, which measures changes in prices for producers, is expected to rise 0.2% on the month in July, an annual headline rise of 2.3%, down from 2.6% the prior month.

The core figure, which excludes volatile food and energy components, is also expected to rise 0.2% on a monthly basis, down from 0.4% in June, with an annual rise of 2.7%, a drop from 3.0%.

“We expect a consensus 0.2% MoM print across headline and core measures to ease market nerves about a round of higher CPI/PCE that would deliver a hard hit to the risk sentiment just as global stock indices finalise their recovery of recent losses,” said analysts at ING, in a note.

The more widely-watched consumer price index data is due on Wednesday, and is also expected to show inflation cooled slightly in July.

Investors will parse through the dataset to try and decide whether the Federal Reserve will go for a 50 basis point cut or a 25 bps cut in its September meeting - traders are currently evenly split between the two, according to the CME FedWatch tool.

The Fed at the end of July kept the policy rate in the same 5.25%-5.50% range it has been for more than a year, but signaled that a rate cut could come as soon as September if inflation continued to cool.

Sterling higher after wage growth

In Europe, GBP/USD traded 0.3% higher at 1.2801 after the release of data showing U.K. wage growth, without bonuses, rose 5.4% in June.

Although this still represents a fall from the revised 5.8% the prior month, it was still above the expected growth of 4.6% and suggests the Bank of England will have difficulty in completely reining in inflation.

Additionally, U.K. grocery inflation edged higher this month for the first time since March 2023, with market researcher Kantar stating that annual grocery price inflation was 1.8% in the four weeks to Aug. 4, versus 1.6% in the previous four week period.

EUR/USD dropped 0.1% to 1.0922, with the euro slipping slightly after Spanish consumer prices fell 0.5% in July on the month, an annual rise of 2.8%

The European Central Bank started cutting interest rates in June, and many expect the policymakers to agree to another reduction in September, particularly with inflation showing signs of dissipating.

Yen drifts lower

In Asia, USD/JPY rose 0.4% to 147.81, with the yen weakening following a Reuters report that Japan's parliament plans to hold a special session on Aug. 23 to discuss the central bank's decision last month to raise interest rates.

The pair had fallen as low as 141 last week amid increased safe haven demand and an unwinding carry trade, but questions remain just how much scope there was for the BOJ to hike interest rates further this year.

USD/CNY dropped 0.1% to 7.1704, with industrial production and retail sales data due later this week.

This article first appeared in Investing.com