Dollar Dips Ahead of Key US Inflation Data

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By Rae Wee

SINGAPORE, Reuters - The U.S. Dollar slipped on Wednesday before a closely watched inflation reading that will give clues as to the direction of Federal Reserve interest rates hikes.

After last week's strong U.S. job data, all attention is now focused on the inflation report. Currency moves are subdued in advance of the release.

The euro rose 0.1% to $1.0924 and the sterling rose 0.04%, both currencies being well off their recent lows.

The U.S. Dollar Index fell by 0.05%, to 102.07.

Joseph Capurso is the head of sustainable and international economics at Commonwealth Bank of Australia.

Reuters polled economists who predicted that headline inflation for March would be 5.2%, down from the previous 6.0%, but core inflation was likely to increase to 5.6%.

"Powell said many times that he wanted to see a downward trend in inflation, but data hasn't shown this yet. Capurso, in reference to Fed chair Jerome Powell, said that tonight was so important.

The Fed's speakers Tuesday gave little indication of how far interest rates will rise in the United States. New York Fed president John Williams said that the central bank would make its policy decisions based on new data.

Patrick Harker, President of the Philadelphia Fed Bank, said that he believes a rate cut is near.

Money markets have priced in roughly 74% of the chance that the Fed would raise rates next month by 25 basis points. However, multiple rate cuts were also priced in from July to the end the year.

The collapse of Silicon Valley Bank, which occurred last month, has increased the odds that the Fed will not increase rates as much as they had feared to relieve the stress in the banking sector.

Austan Goolsbee, the Chicago Fed president, said on Tuesday that the U.S. Central Bank should take its time when it comes to raising interest rates due to recent financial sector turmoil.

The dollar fell 0.06% against the yen to 133.62 yen. However, it was still near the one-month-old high of 133.87, reflecting the stark contrast between Fed's aggressive tightening of monetary policy and Bank of Japan (BOJ's) ultra-loose monetary policy.

In its report on global financial stability released Tuesday, the International Monetary Fund stated that by allowing greater flexibility in its policy of yield curve control, the BOJ can help to prevent sudden policy changes in future.

The Aussie gained 0.07%, to $0.6658. Meanwhile, the Kiwi rose 0.05%, to $0.6195.

Bitcoin, the most popular cryptocurrency, was slightly higher on Tuesday, at $30,285. It is still above the $30,000 key level, which it has breached for the first time since 10 months.

Ether, second largest cryptocurrency was valued at $1,893.50.