Dollar stabilizes after sharp CPI-induced fall; euro hands back some gains By Investing.com

Investing.com – The U.S. dollar steadied in European trade Thursday, after dropping to multi-week lows overnight in the wake of a milder U.S. inflation report, which brought Fed rate cuts back into focus. 

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 104.285, having fallen to a five-week low just below 104 overnight.

Dollar on back foot after key inflation data

The dollar remains on the back foot after the latest U.S. inflation data raised expectations the will deliver two interest rate cuts this year, probably starting in September.

Wednesday’s rose by 0.3% in April, below an expected 0.4% gain, which came as a relief to markets after sticky consumer prices in the first quarter had led to a sharp paring of rate cut bets and even stoked some worries of an additional hike.

The data also resulted in U.S. Treasury yields sinking to six-week troughs, as traders reassessed the likely path of the Fed’s monetary policy.

“Markets have given a greater weight to the encouraging news coming from two days of inflation figures, which has caused the dollar to almost entirely erase the gains after the CPI disappointment in mid-April,” said analysts at ING, in a note.

There are a number of Fed speakers due to opine later in the session, but it’s likely investors will need concrete evidence if rate cut expectations are to be changed drastically from now.

“Our preferred call at this stage is not for a continuation of a dollar decline until the end of May, but instead a period of quiet trading with little sense of direction and low volatility. That’s mainly because hard data is needed to move the needle substantially on Fed pricing, and the next key release – core PCE – is only on 31 May,” ING added.

Euro retreats from earlier highs

In Europe, traded 0.1% lower to 1.0867, with the euro retreating slightly Thursday after earlier climbing to its highest since March 21.

The is widely expected to start cutting interest rates from a record high in June, and markets now see up to three rate cuts this year, or two beyond June, most likely in September and December.

“The 1.0900 level should not be a very strong resistance if U.S. data – for example, jobless claims today – adds pressure on the dollar. However, a move to the 1.1000 benchmark levels seems premature given the…