The dollar treaded water on Tuesday as investors braced for an highly anticipated inflation report, while the yen strengthened ahead of the expected announcement of surprise pick Kazuo Ueda as the next Bank of Japan governor.
Markets are looking to the U.S. consumer price index (CPI) data for further clues on Federal Reserve’s policy outlook, with the headline number expected to rise 0.5% in January, according to a Reuters poll, after falling 0.1% in December.
The dollar index, which measures the U.S. currency against six major rivals, eased 0.019% to 103.17, having slipped 0.34% overnight. The index is up 1% for the month of February.
“There are tentative signs that U.S. inflation is cooling … (but) there is a limit on how low underlying inflation can go while services inflation is still very high,” said Kristina Clifton, a senior economist at Commonwealth Bank of Australia.
Clifton said services inflation, which is strongly linked to wages growth, has shown no signs of softening, adding that a cooling in the labour market will be required for that to occur.
“While the labour market remains tight and wages growth very strong there is the risk that we receive upside surprises on the underlying inflation figures,” she said.
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