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Investing.com - The U.S. dollar edged higher Friday, enduring a choppy week as traders digested more uncertainty around trade policy ahead of a key inflation reading later in the session.
At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, gained 0.3% to 99.510, slightly higher for the week after five consecutive losing weeks.
Dollar bounces ahead of PCE data
The dollar has bounced higher Friday after ending the previous session lower as a federal court temporarily reinstated most of President Donald Trump’s tariffs, just a day after another court had ordered an immediate block on them.
The greenback could close this week higher, but the general direction of travel has been lower as the uncertainty around tariffs has prompted investors to flee U.S. assets in a search for alternatives, worried that Trump’s erratic policies could challenge the strength and outperformance of U.S. markets.
Attention will now turn to the release of the latest PCE price index data - the Federal Reserve’s preferred inflation gauge - for more insight into inflation in the U.S. economy, and the U.S. central bank’s likely monetary policy response.
The core PCE price index for April, a measure which excludes volatile food and energy prices, is expected to rise 0.1% on a monthly basis, up from the previous flat figure.
“Perhaps most important will be the personal spending number, which is expected to soften to 0.2% month-on-month from 0.7%. Any downside miss here would hit the dollar,” said analysts at ING, in a note.
Euro slips after weak German retail sales
In Europe, EUR/USD traded 0.3% lower to 1.1332, after data showed that German retail sales fell by 1.1% in April compared with the previous month.
Additionally, numbers from a series of German states also pointed to weak inflationary pressures in the eurozone’s largest economy, while Spain’s European Union-harmonised 12-month inflation rate fell in May to its lowest level since October.
Subdued economic activity and cooling inflation point to another rate cut by the ECB when it next meets on June 5, with financial markets expecting that it would lower its key deposit facility rate to 2.00% from 2.25%.
Such a move would mark the ECB’s eighth rate cut in a row.
The market currently prices 58bp of ECB easing this year versus 50 bps for the Fed. That’s broadly in line with our house forecasts and suggests interest rate differentials (which currently suggest EUR/USD should be trading lower) may not be moving much from current levels,” said ING.
GBP/USD traded 0.1% lower at 1.3480, on course for monthly gains over over 1.5% as elevated inflation keeps the Bank of England relatively restrained in terms of rate cuts.
Yen helps by safe haven demand
In Asia, USD/JPY traded 0.2% lower to 143.88, with the currency benefiting from safe haven demand, while Tokyo consumer inflation data for May read stronger than expected.
Tokyo inflation usually acts as a bellwether for national Japanese inflation, with the print likely giving the Bank of Japan more headroom to raise interest rates. Markets were seen pricing in a greater chance for a 25 basis point hike in July, although hikes after that were doubtful.
Other Japanese data read positive. Industrial production shrank less than expected in April, while retail sales grew past expectations.
USD/CNY traded 0.1% higher to 7.1949, little changed even as U.S. Treasury Secretary Scott Bessent said trade talks with China had stalled after an initial agreement earlier in May.