The dollar fell in European trade against a basket of major rivals as US 10-year treasury yields tapered off ahead of crucial US inflation data for January.
Such data will showcase the extent of inflationary pressures on Fed policymakers these days, and will provide fresh clues on the likely data of the first US interest rate cut.
The Index
The dollar index fell 0.1% to 104.10, with a session-high at 104.29, after closing up 0.1% on Monday, the second profit in three days as US treasury yields advanced.
US Treasury Yields
US 10-year treasury yields slipped 0.3% on Tuesday, on track for the first loss in five sessions, giving up four-week highs at 4.197%, which in turn pressured the greenback.
Traders are shunning new positions until US inflation data are released, which will be crucial in guiding the next policy step by the Federal Reserve.
US Rates
Current pricing for a Fed 0.25% interest rate cut in March stands at 13.5%, while pricing for such a cut in May stands at 57.5%.
Traders now expect four US rate cuts this year totalling 100 basis points, down from previous expectations of six rate cuts totalling 150 basis points back in January.
US Inflation Data
US consumer prices are expected up 2.9% y/y in January, slowing down from 3.4% in December, while core prices are expected up 3.7%, slowing down from 3.9%.
A special focus is on core consumer prices which are monitored to gauge their march towards the 2% Fed inflation target.
Obviously, strong US inflation data will hurt the odds of US interest rate cuts in March and May, in turn boosting the dollar, and vice versa.
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