The dollar fell from its highest point in a week on Wednesday, before Federal Reserve Chair Jerome Powell gave a speech. Optimism about China’s COVID restrictions loosening has put the dollar on track for its biggest monthly loss in over 20 years.
The euro was one of the best-performing currencies, rising by up to 0.3% before inflation data for the eurozone, which could show the first slowdown since June of last year.
Consumer inflation is expected to have gone up by 10.4% in November, which is less than the final reading for October, which was 10.6%. It’s still more than five times the rate set by the European Central Bank. But after almost two years of inflation going up almost nonstop, markets might be glad to see any sign that the worst may be over.
Related: Unrest in China caused by COVID causes the dollar and yuan to fall.
On Tuesday, prices for European assets went up because of inflation in Spain, and a number of big German states went down.
“The main focus will be on today’s flash CPI from the EU,” said CMC Markets chief markets strategist Michael Hewson. “It could set the stage for whether we get 50 basis points or 75 basis points when the ECB meets in just over two weeks.”
“If the direction of commodity prices over the past few months is any indication, there are more and more signs that we may be close to peak inflation.”
The euro was last up 0.2% at $1.0348. Earlier on Wednesday, when it was at $1.0319, it was at its lowest point in a week. It went up 0.1% against the pound, to 86.46 pence.
The U.S. dollar index, which shows how the greenback is doing against six major currencies, dropped by 0.22% to 106.64, down from a high of 106.90 the day before.
It fell 4.3% in November, the most in a single month since June 2010. This is because investors are betting more that inflation has reached its peak and that the Fed will soon signal a change to a softer monetary policy.
Powell will talk about the economy and the job market in a speech to the Brookings Institution in Washington at 18:30 GMT. At 13:15 GMT, private-sector employment data for November is due.
Investors think there is a 63.5% chance that the Fed will only raise interest rates by a half point on December 14 and a 36.5% chance that it will raise rates by another 75 basis points.
Monday, John Williams, president of the New York Fed, said that the central bank needs to keep raising rates, and James Bullard, president of the St. Louis Fed, said that policy tightening still has “a ways to go.”
“The underlying message is that the Fed is not happy with where inflation and employment are at the moment,” Bart Wakabayashi, branch manager at State Street (NYSE: STT) in Tokyo, said.
“At this point, Powell will continue to err on the side of being too tough.”
The dollar went up 0.1% against the yen, to 138.75 yen, as the two currencies continued to stay close to each other after Monday’s jump from a three-month low of 137.50.
Related: Before a big U.S. inflation report, the dollar is getting weaker.
Sterling was flat at $1.1962.
In China, data showed that manufacturing was weaker than expected, which shows that the government’s zero-COVID policies are still hurting the economy.
The dollar fell by 0.1% to 7.1483, which made the offshore yuan stronger.
Chinese health officials said on Tuesday that they will speed up COVID-19 vaccinations for the elderly. They want to get around a problem that was getting in the way of easing “zero-COVID” restrictions, which were unpopular and had sparked protests in recent days.
“Overall, it looks like China is ready to move from zero COVID to living with COVID,” Kim Mundy, a strategist at Commonwealth Bank of Australia (OTC: CMWAY), wrote in a client note.