The dollar rebounded yesterday after six consecutive days of losses after US inflation data emerged higher than expected, indicating that it might not be slowing down. A more resilient inflation could support the Federal Reserve’s aggressive monetary policy and could see interest rates remain at elevated levels for longer, supporting wider rate differentials with other major currencies.
While it recovered to a certain extent this month, the euro could come under renewed pressure from a stronger dollar. At the same time, the softer tone of the ECB could help maintain its downtrend against the USD while economic risks in the euro area could continue to fuel traders’ concerns.
Similarly, the British pound could continue to weaken against the dollar due to the muted economic growth and the potentially softer direction in monetary policy. While GDP growth figures in the UK met expectations, industrial production figures were weaker than expected and could pull the currency down.
The Japanese Yen also retreated to a certain extent against its US counterpart and could be heading toward this month’s lowest point for a second time. However, the yen’s weakness could add to the concerns about a potential intervention from the Bank of Japan while its ultra-loose monetary policy continues to weigh on its performance.