US interest rates and February inflation statistics boosted dollar

The dollar advanced in early trade as the market turned its view on possible moves in US interest rates on Tuesday amid February inflation statistics.

The US consumer price index retreated to 6%. Still, key parts of the report showed negative price increases quickly, showing the Federal Reserve’s lack of room to manoeuvre in response to last week’s bank retreat.

Yields on the volatile two-year bond edged lower as the market reaffirmed the consensus that the Fed would raise interest rates by 25 basis points at next week’s meeting, especially as failure to do so would cause too much mistrust and volatility.

The dollar index advanced 0.12 to 103.32 and fell to 103.02 in a four-day slump.

The Fed will follow the CPI report with data on US retail sales and producer price inflation next week, which will be important for their decision.

European Markets

In Europe, the euro will advance until the European Central Bank follows through on its plans to raise key rates by 50 basis points. Inflation exceeds the 2025 target of 2.2%.

This was highlighted by the release of French inflation statistics for February, which were revised to a 1.12% rise in prices last month, bringing the annual inflation rate back to 7.32% in the eurozone’s second-largest economy.

The euro rose to $1.0760, its highest level since mid-February, before retreating to $1.0736, up 0.13%.

In Europe, the sterling came under further pressure from the UK government’s new budget, which is likely to focus on moves to improve labour supply. The UK has the highest level of economic stagnation among the G7 countries, largely due to long-term remoteness and early retirement during COVID.

The yuan retreated in February after mixed data on industrial production, retail sales and fixed investment.