US Dollar Falls to Lowest in Three Months Ahead of Inflation Data
The US dollar fell to its lowest in three months against a basket of major currencies on Tuesday, as investors awaited inflation data that could provide clues about the pace of future interest rate hikes.
The dollar index, which tracks the US currency against a basket of six major peers, fell as low as 101.66, its lowest level since April 11. The euro rose to its highest level in three months against the dollar, trading at $1.0997.
The decline in the dollar came ahead of the release of US inflation data on Wednesday. Economists expect inflation to have risen to 8.8% in June, the highest level in 40 years.
If inflation comes in higher than expected, it could increase pressure on the Federal Reserve to raise interest rates more aggressively. This could further weaken the dollar.
"The dollar is under pressure ahead of the inflation data," said Erik Nelson, macro strategist at Wells Fargo. "If inflation comes in hot, it could lead to more aggressive rate hikes from the Fed, which would weigh on the dollar."
The dollar has been under pressure in recent months as investors have become more concerned about the outlook for the US economy. The Federal Reserve is expected to raise interest rates several more times this year in an effort to cool inflation. However, there are growing concerns that these rate hikes could lead to a recession.
The decline in the dollar has been a boon for other currencies, such as the euro. The euro has been trading near its highest level against the dollar in years.
The weaker dollar could make imports more expensive for US consumers, which could further fuel inflation. However, it could also make US exports cheaper for foreign buyers, which could boost economic growth.
The direction of the dollar in the coming months will likely depend on the pace of inflation and the outlook for the US economy. If inflation comes in lower than expected and the economy shows signs of slowing, the dollar could start to rebound. However, if inflation remains high and the Fed continues to raise interest rates, the dollar could continue to fall.
