Dollar holds below 3-week peak ahead of key inflation data

The dollar hovered just below a three-week high against a basket of currencies on Tuesday, ahead of the release of U.S. inflation data that could give traders a steer on the near-term outlook for interest rates, Reuters reported.

The dollar has also been underpinned by the gradual rise in recent weeks in Treasury yields, as investors weigh the odds that Federal Reserve Chair Jerome Powell might be forced to leave his role early, given U.S. President Donald Trump’s repeated criticism of the head of the central bank.

The euro, the pound and the Swiss franc all recovered some of the previous day’s losses, ahead of a barrage of data later in the day that includes U.S. inflation and German investor sentiment.

Meanwhile, bitcoin drifted further from Monday’s all-time peak of $123,153.22 following a 14% surge in the space of a week, as investors bet on long-sought legislative policy wins for the cryptocurrency industry this week. It was changing hands at around $117,550 as of 0520 GMT.

The euro rose 0.2% on the day to $1.1688, breaking four straight days of losses.

“Today’s U.S. CPI release (is) likely to be a decisive moment for the pair,” BBVA strategist Roberto Cobos said.

“Stronger-than-expected inflation would reinforce the case for the Fed to maintain its cautious stance on rate cuts – likely offering near-term support for the dollar. However, a downward surprise in the U.S. CPI would make the wait-and-see approach harder to justify,” he said, adding that this would drag the dollar lower.

The dollar was little changed at 147.71 yen, after earlier rising to the highest since June 23 at 147.89 yen.

The dollar index, which tracks the currency against the yen, euro and four others, eased slightly to 98.003, not far below the overnight peak of 98.136, the highest since June 25.

Powell has said he expects inflation to increase this summer as a result of tariffs, which is seen keeping the U.S. central bank on hold until later in the year.

Economists polled by Reuters expect headline inflation to increase to 2.7% on an annual basis, up from 2.4% the prior month. Core inflation is expected to rise to 3.0%, from 2.8%.

“Should inflation fail to materialise or remain steady, questions may arise regarding the Fed’s recent decision not to cut rates, potentially intensifying calls for monetary easing,” James Kniveton, senior corporate FX dealer at Convera, wrote in a client note.

“Calls from the White House for leadership changes at the Fed may increase.”

Trump on Monday renewed his attacks on Powell, saying interest rates should be at 1% or lower, rather than the 4.25% to 4.50% range the Fed has kept the key rate at so far this year.

Fed funds futures traders have been pricing in about 50 basis points of interest rate cuts by year-end, with the first quarter-point reduction seen as likely in September.

Currencies barely reacted to data showing China’s economy grew 5.2% last quarter, slightly topping analysts’ forecasts – in a sign of resilience against U.S. tariffs.

At the same time, analysts warned of underlying weakness and rising risks later in the year that will ramp up pressure on Beijing to roll out more stimulus.

The Chinese yuan weakened slightly to 7.1766 per dollar in offshore trading, before recovering modestly to 7.175.

The pound rose 0.2% to $1.1687 ahead of Bank of England Governor Andrew Bailey’s annual “Mansion House” address to London’s financial sector on Tuesday, along with finance minister Rachel Reeves.