Dollar advances against yen ahead of US inflation data
The dollar firmed against the yen on Tuesday and held its ground against the euro and sterling, as markets braced for a U.S. consumer inflation report later in the day that could shape expectations for Federal Reserve interest rate cuts.
A moderate reading on price pressures could cement bets for a Fed rate reduction next month, but if signs emerge that U.S. President Donald Trump's tariffs are stoking inflation that might keep the central bank on hold for now.
The dollar added 0.2% to 148.40 yen as of 0444 GMT.
The euro edged slightly higher to $1.1622, while sterling eased slightly to $1.3426.
The dollar index - which measures the currency against those three counterparts and three more rivals - was steady at 98.476, after advancing 0.5% over the past two sessions.
Prior to that, the dollar had retreated as Trump's dovish-leaning pick to replace a Fed governor, and similarly inclined potential candidates for chairman, led traders to increase bets on Fed policy easing.
In addition, Fed officials have sounded increasingly uneasy about signs of weakness in the U.S. labour market, signalling their openness to a rate cut as soon as September.
Traders currently put the odds of a quarter-point cut on September 17 at about 89%.
"Risk-reward heading into U.S. CPI this week is for a modest USD bounce as any upside surprise will challenge market pricing of almost a full cut by September," TD Securities strategists wrote in a research note.
"A downside surprise, on the other hand, is unlikely to move Fed pricing and the USD as much," they said.
"The reasoning is that for the Fed to consider an outsized cut of 50 basis points, the catalyst will be further deterioration in the labour market and not a downside CPI miss."
Economists polled by Reuters expect core CPI to have risen 0.3% in July, pushing the annual rate higher to 3%.
Currency markets largely ignored Trump's decision to extend a pause in sharply higher tariffs on Chinese imports for another 90 days, a move that many market participants said had been expected.
With the United States and China seeking to close a deal averting triple-digit import tariffs, a U.S. official told Reuters that chip makers Nvidia <NVDA.O> and AMD <AMD.O> had agreed to allocate 15% of China sales revenues to the U.S. government, aiming to secure export licences for semiconductors.
The yuan was flat at 7.1917 per dollar in offshore trading.
The Aussie fetched $0.6513 <AUD=D3>, little changed from Monday, after the Reserve Bank of Australia's widely expected decision to cut rates by a quarter point. The central bank cited a slowdown in inflation and a looser labour market, though it was cautious on the prospect of further easing.
Cryptocurrency bitcoin <BTC=> edged up to around $119,049, after climbing as high as $122,308.25 on Monday, taking it close to the all-time peak of $123,153.22 from mid-July.
