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Title: Dollar Edges Lower; U.S. CPI to Inform Hike Expectations

Jun 06, 2022 02:59AM ET

By: AnalysisWatch

The US dollar fell slightly in early European trading on Monday, with activity limited ahead of key US consumer inflation data and an important European Central Bank meeting.

At 3:00 GMT (07:00 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was down 0.1% to 102.025.

The index rose about 0.5% last week after the US jobs report released on Friday showed employers created 390,000 jobs in May, exceeding expectations and raising expectations that the US Federal Reserve will continue its aggressive fight against inflation.

This week the focus will be on the US consumer price index for May, which will be released on Friday.

High inflation will raise expectations of aggressive monetary policy tightening by the US Federal Reserve and likely end last month's speculation that the Fed would take a pause in raising interest rates at its September meeting.

However, core inflation, which excludes volatile energy and fuel prices and is the Fed's preferred measure, is expected to be 5.9% year-on-year, down from 6.2% the previous month. This would mark the third consecutive month of decline and would show that core inflation has peaked.

Also important this week is Thursday's European Central Bank meeting, which should set the stage for an interest rate hike at the July meeting, especially after the latest data showed that eurozone consumer inflation accelerated to a new record high of 8.1% in May.

EUR/USD rose 0.1% to 1.0726, GBP/USD rose 0.3% to 1.2528 and USD/JPY fell 0.2% to 130.54 but is close to last month's 20-year high of 131.34.

Risk-sensitive AUD/USD fell slightly to 0.7204 ahead of Tuesday's Reserve Bank of Australia meeting, where a 25 basis point rate hike is expected as the central bank tightens policy to fight inflation.

USD/CNY fell 0.1% to 6.6541 after China's Caixin services purchasing managers' index rose to 41.4 points in May from April's 36.2 points, indicating a slow recovery in the world's second-largest economy as the country eases COVID-19 restrictions in cities such as Shanghai.

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