Ella 
The U.S. dollar attracted some bargain hunting during the Asian session on Wednesday following positive two-way price action in the previous day and held steady above 104.00. However, the U.S. Dollar Index (DXY), which tracks the greenback against a basket of currencies, remained within its weekly trading range as traders waited to see U.S. consumer inflation data before placing new directional bets.
The crucial U.S. consumer price index report will be released later in the North American morning session. The report will provide new clues on the path of future interest rate hikes by the Federal Reserve (Fed) after it is widely expected to suspend interest rate hikes in September. Markets have been pricing in the possibility that the Fed will raise interest rates by 25 basis points before the end of the year. Improved U.S. economic data released last week boosted market expectations. These data showed that the U.S. economy is dynamic and that the Federal Reserve should be able to maintain higher interest rates for a longer period of time.
Therefore, any signs of sustained higher inflation would reaffirm the Fed’s bets on further tightening policy and set the stage for the dollar to resume its recent gains, which last week saw the dollar index rise to a six-month high. Ahead of key U.S. economic data risks, the Fed’s hawkish expectations still support rising U.S. bond yields and may continue to be a tailwind for the dollar. In addition, weakness in the stock market will also provide further support for the safe-haven dollar.
Market participants remain concerned about the deteriorating economic situation in China, the world’s second-largest economy. Separately, a Reuters poll showed that business confidence among Japan’s largest companies fell in early September due to a slowdown in China, one of Japan’s largest export markets. That, coupled with concerns about headwinds from rapidly rising borrowing costs, has weighed on investor appetite for riskier assets and continues to drive some safe-haven flows into the dollar.
