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Dollar rises ahead of U.S. inflation data

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The dollar index was 0.1% higher at 104.12, as the market expects the CPI for January to give the Fed further confidence that inflation is slowing towards its 2% target

The dollar gained modestly against major currencies on Monday, as investors awaited data on U.S. inflation and retail sales this week for clues on when the Federal Reserve may begin widely expected interest rate cuts.

In crypto currencies, bitcoin reached $50,000 for the first time since December 2021, boosted by inflows into ETFs backed by the digital asset. It was up 5.6% at $50,207.

The dollar index, a measure of the greenback against six of its peers, was 0.1% higher at 104.12, as the market expects the CPI for January – due to be released on Tuesday – to give the Fed further confidence that inflation is slowing towards its 2% target.

Psychologically, dropping down into the 2s (in the CPI year-on-year) even though it is 2.9% for the headline CPI number would be a good boost for market sentiment, said Amo Sahota, executive director at Klarity FX in San Francisco.

We are in a holding pattern here. There seems to be no directional trades. It is really like: Let’s just take a breath before tomorrow’s (consumer price index) data, before we make the next push in either direction, Sahota added.

Ahead of the CPI report on Tuesday, the Federal Reserve Bank of New York released on Monday its January Survey of Consumer Expectations, which showed inflation a year and five years from now were unchanged at readings of 3% and 2.5%, respectively, while the estimated increase in inflation three years from now declined to 2.4%, the lowest since March 2020, from December’s 2.6%.

The market is in a reasonably good mood going into Tuesday, hoping that we are going to get a similar outcome, added Sahota.

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