The upcoming release of U.S. inflation data has contributed to a weak quarter for the U.S. dollar, which has experienced its second consecutive quarterly loss. While the Dollar Index rose by 0.1% in early European trade, it remains close to its lowest level since February.
The decline in the U.S. banking sector has led traders to reassess the future moves of the Federal Reserve, which could result in U.S. interest rates peaking and eroding the dollar’s yield advantage. However, this view hinges on the Fed being successful in combating inflation.
Later in the session, the core PCE price index, the Fed’s preferred inflation gauge, is expected to report a 0.4% rise from the prior month and a 4.7% increase for the year through February.
The EUR/USD remained steady at 1.0901 after weak German retail sales, but it increased by 0.5% on Thursday following strong German inflation data. Meanwhile, GBP/USD rose by 0.1% to 1.2392 following data showing that Britain’s economy grew in the fourth quarter of 2022.
AUD/USD and USD/JPY traded flat at 0.6706 and rose 0.4% to 133.12, respectively. USD/CNY fell 0.1% to 6.8645 despite data showing that overall Chinese business activity grew at its fastest pace in over a decade, although the recovery was uneven. The service sector grew more than expected, but growth in the manufacturing sector slowed from the previous month.