Dollar gains ahead of PPI release; euro seeks ECB clues

Investing.com - The U.S. dollar edged higher in European trade Thursday, retaining recent strength ahead the release of more cues on U.S. interest rates in the form of producer inflation and retail sales data.

At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 102.490.

Dollar gains ahead of U.S. PPI release

The dollar received a boost earlier in the week after the release of a stronger-than-expected U.S. consumer price index print earlier this week, which ramped up bets that the Federal Reserve will take its time in reducing interest rates.

The U.S. currency has slumped around 1.7% over the last month, hit hard last week by dovish comments from Fed chief Jerome Powell, during his two-day testimony in front of Congress, which were seen by the markets as suggesting the U.S. central bank was preparing to start cutting interest rates in the summer.

However, the index is still up around 1.5% this year as U.S. data has shown that the economy remains strong, and Tuesday’s CPI release suggested inflation remains a major sticking point.

The focus now turns towards the release of the producer price index for February, in particular, and retail sales for the same month for more clues as to the likely thinking by Fed officials ahead of next week’s policy setting meeting.

“PPI will be watched very closely as investors seek confirmation that inflation is not as hot as the CPI report suggested,” said analysts at ING, in a note. “The consensus is 0.2% month-on-month for core PPI, but the whisper number is surely higher after CPI.”

Euro lacks volatility; ECB to start cutting soon?

In Europe, EUR/USD edged 0.1% lower to 1.0942, with the lack of significant economic data in the eurozone contributing to a lack of volatility.

The ECB kept rates at record highs of 4% last week, but traders are looking for the central bank to start cutting interest rates shortly given the slow growth in the region, and in Germany, in particular.

The European Central Bank will probably start cutting rates during the spring, French central bank head and ECB policymaker Francois Villeroy de Galhau said on Wednesday, describing spring as between April and June.

ECB chief Christine Lagarde earlier this month hinted strongly that a long-awaited rate cut would be more likely to happen at the central bank's meeting in early June, rather than in April.

GBP/USD traded 0.2% higher at 1.2816, with the Bank of England widely expected to keep interest rates unchanged when it meets next week, as inflation remains above the central bank’s 2% medium-term target.

BOJ meeting looms large

In Asia, USD/JPY traded 0.1% higher to 147.82, with the yen handing back some of the recent gains with the Bank of Japan set to meet next week.

Reports have suggested that the central bank is very close to ending its ultra-easy monetary policy, especially after an upward revision in GDP data showed the Japanese economy dodging a technical recession in the fourth quarter.

USD/CNY edged 0.1% higher to 7.1902, amid persistent doubts over an economic recovery in the country, while AUD/USD rose 0.1% to 0.6624, with strength in commodity prices pushing the Aussie dollar to a near two-month high in recent sessions.

This article first appeared in Investing.com