The US dollar turned defensive against other major currencies on Tuesday, with traders reluctant to push the US dollar higher in the absence of reassuring recent signs.
U.S. inflation data. on Wednesday will be the main focus and factor to change the US dollar. The US dollar had earlier risen sharply after an unexpectedly strong jobs report on Friday prompted bets on another Fed rate hike of 75 basis points.
However, the US dollar currency began to weaken as the sentiment that drove the US dollar surge was losing its effect. The US dollar index which measures the US dollar against six major currencies traded down 0.33% to trade at 105.968.
Kenneth Broux, currency strategist at Societe Generale expressed concern over inflation data to be released tomorrow. Strong inflation will drive expectations for a 75 basis point rate hike in September.
"It is still too early to say it is time to reduce US dollar holdings because the Fed is likely to raise rates high again".
The Fed raised rates by 75 basis points in June and July. Money market futures show traders see about a two-thirds chance of a 75 basis point hike next month.
Economists polled by Reuters see inflation growing by 8.7%. The Fed even targets the inflation rate at 2%. The gap between two- and 10-year Treasury yields, a reliable indicator of recession, has widened to its largest in two decades.
The reaction of the US dollar is seen as increasingly difficult to predict due to growth and geopolitical concerns. China is still continuing military exercises near Taiwan that are seen as a protest against the visit of the Speaker of the U.S. House of Representatives. Nancy Pelosi.
The New Zealand currency was steady at $0.6289, while the Australian dollar was lower at $0.6977.
