Anna 
In early European trade on Thursday, the U.S. dollar dipped, lingering near a two-week low in anticipation of the release of significant U.S. inflation data.
As of 03:15 ET (07:15 GMT), the Dollar Index, which gauges the dollar against a basket of six major currencies, was down 0.2% at 105.377, teetering just above the day’s lowest point, marking the greenback’s weakest level in two weeks.
Possibility of Higher Bond Yields Impacting Rate Hike Decision
The minutes from the Federal Reserve’s most recent meeting, unveiled on Wednesday, revealed a consensus among most of the central bank’s policymakers that an additional rate hike would be “appropriate,” considering that inflation remains significantly above target.
Nevertheless, the minutes also highlighted economic uncertainties that support “the case for proceeding carefully in determining the extent of additional policy tightening that may be suitable.”
In the weeks following the September meeting, there has been a notable surge in Treasury yields. Several Fed officials have suggested that this development may influence their decision to conclude the rate hike cycle, potentially to the detriment of the U.S. dollar.
“U.S. yields continued to correct lower on expectations the Fed will let markets do the tightening and refrain from hiking again,” noted analysts at ING in a statement. “We suspect, however, that further bond rallies might put a hike back on the table, and limit USD losses.”
Anticipation for U.S. CPI Data
Despite losses earlier in the day, September’s U.S. producer inflation figures surpassed expectations, contributing to a sense of apprehension ahead of the forthcoming consumer price data.
Analysts anticipate the headline number to reveal a 3.6% increase from the previous year and a 0.3% rise for the month. Additionally, the core CPI, which excludes food and fuel prices, is projected to show a 4.1% increase year-on-year and a 0.3% rise compared to August.
According to ING, “The argument for a long-lasting dollar decline from these levels is not very compelling unless the drop in rates is endorsed by slower-than-expected inflation. We still think it will take a turn in the U.S. data flow to drive the dollar substantially – and sustainably – lower.”
Positive News for the UK Economy
GBP/USD experienced a 0.1% increase, reaching 1.2323, following news that the U.K. economy expanded by 0.2% in August. This recovery partially offset the sharp 0.6% decline observed in July.
The recent growth has reduced the likelihood of a recession commencing as early as the July-September period. The Office for National Statistics (ONS) stated that the economy would need to grow by 0.2% in September to avoid a contraction in the third quarter.
Euro on the Rise
EUR/USD recorded a 0.2% increase, reaching 1.0634, with the euro’s upward trajectory continuing after touching a two-week high the previous day.
ING suggested, “Our short-term fair value model suggests that we could see the upward correction in EUR/USD extend to 1.0700, but we think that may be the top of the range unless US CPI surprises on the soft side.”
In other currency movements, AUD/USD rose 0.1% to 0.6419, NZD/USD dropped 0.2% to 0.6006, and USD/CNY edged lower to 7.2977.
