The U.S. dollar edged higher in early European trade Tuesday, reversing some of the previous session's sharp losses as traders revised their positions before data showing a potential rise in U.S. inflation.
At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 104.332, after falling 0.5% in the prior session, retreating from last week's six-month high of 105.15.
The focus of the foreign exchange market this week is squarely on U.S. consumer inflation data due on Wednesday, which is expected to set the tone for a Federal Reserve meeting next week.
The central bank is widely expected to keep rates on hold in September, but signs that inflation is proving sticky could prompt another hike before the end of the year.
GBP/USD traded largely flat at 1.2505, as traders digested the latest U.K. employment data.
The U.K. unemployment rate rose to 4.3% in the three months to July from 4.2% a month earlier, its highest since the three months to September 2021, with the labor market showing signs of cooling.
However, wages excluding bonuses were 7.8% higher than a year earlier in the three months to July - the joint-fastest rate since records began in 2001 - putting more pressure on the Bank of England to tighten monetary policy further.
BOE policymaker Catherine Mann warned late Monday that it's too soon to stop raising rates, and the central bank is widely expected to hike by another 25 basis points.
EUR/USD fell 0.1% to 1.0732, after Spanish inflation came in as expected in August, rising 2.6% on an annual basis, a jump up from 2.3% the prior month.
The European Central Bank meets on Thursday, and having raised rates at each of its past nine meetings, policymakers are now debating whether to raise the deposit rate again, to 4%, or pause.
Inflation remains above target, but growth is slowing in the region, and the latest German ZEW economic sentiment data, due later Tuesday, is expected to show a deterioration in confidence in the eurozone's dominant economy.
USD/JPY rose 0.2% to 146.87, with the yen handing back some of the previous session's outsized gains on the back of comments from Bank of Japan Governor Kazuo Ueda, who said that an end to the BOJ's negative interest rates could be close.
Source : Investing.com
