The dollar index fell 0.57% on Monday as markets turned their attention to increasingly hawkish ECB rhetoric as they geared up for Tuesday’s highly anticipated U.S. inflation report.
Economists expect the CPI data to show a headline U.S. inflation rate of 8.1%, down from July’s 8.5% print, and the result could set the forex market tone until the Fed's Sept.
With the stakes high, traders lightened USD longs, encouraged by a weekend wave of rate-hike resolve talk from ECB officials, who solidified the message that they were prepared to keep tightening policy to fight persistent inflation.
EUR/USD rallied 0.9%, heading toward the U.S. close at 1.1035, buoyed by the ECB calls for rates to potentially rise above 2% if necessary to arrest runaway price growth.
Gains were tempered by an Ifo institute report saying that the German economy will contract next year due to Ukraine-related energy price hikes nL8N30J1FY.
USD/JPY drifted lower, down 0.19% to 142.40, though yen gains lagged other major currencies gains versus the dollar owing to near-zero chance for a BOJ hike in the near-term.
The yen gained slightly amid reports over the weekend that the Japanese government must take steps to counter excessive currency declines.
GBP/USD rallied 1% to 1.1697, a touch below Monday’s 2-week high at 1.1710 on USD long reduction before the U.S. CPI report on Tuesday and expectations UK inflation -- due out on Wednesday -- will remain hot and the BoE will continue raising rates into the first half of 2023.
Gold gained 0.7% to 1,730 on the prospect that falling CPI may ignite another round of Fed pivot talk.
Cryptos were mixed with BTC gaining 2.3% to $22.3k, while ETH dipped 2.3% to 1,726.
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