Dollar edges lower ahead of key U.S. CPI release

Investing.com - The U.S. dollar edged lower Tuesday, but remained near its three-week high ahead of the release of the widely-watched U.S. inflation number that could provide clues on the path for monetary policy.

At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, slipped 0.1% to 97.627, not far below its highest level since June 25. 

Dollar slips ahead of CPI release

The safe-haven dollar slipped slightly lower early Tuesday, with risk sentiment receiving a couple of boosts, namely China’s second-quarter GDP coming in a little stronger than expected, and Nvidia (NASDAQ:NVDA) expressing confidence that it will be able to start exporting its H20 chips to China again, suggesting a thaw in U.S.-China relations. 

However, trading activity is relatively limited as traders await the release of the latest U.S. consumer inflation numbers, with investors looking to see whether this year’s increase in tariffs will finally start to show up in headline figures.

The CPI is expected to show a monthly rise of 0.3% in June, a rise from the 0.1% increase in the prior month, while the annual release is seen climbing to 2.6%, from 2.4% in May.

Investors are eager for the Federal Reserve to resume interest rate cuts, but central bank officials have cited worries that tariffs will drive inflation higher as reasons for holding off on changing monetary policy.

“The reaction should be balanced in that any higher/lower deviation from the 0.3% MoM consensus should lead to a higher/lower dollar,” said analysts at ING, in a note.

“For reference, the U.S. interest rate curve still prices 16bp of Fed easing in September, a move we think will be priced out over the coming months.”

Euro rises ahead of ZEW 

In Europe, EUR/USD rose 0.2% to 1.1691, after dipping to 1.1650 on Monday for the first time since June 25.

Spanish inflation came in slightly above expectations for June, but the main data focus in Europe Tuesday will be the German ZEW economic sentiment index for July, with traders looking for an update on the health of the largest economy in the region.

“These should come in on the strong side as investors focus on the medium-term benefits of German fiscal expansion,” said ING.

The European Central Bank has cut interest rates eight times in its current easing cycle, including at its last meeting in June, bringing the key deposit rate to 2%.

And the ECB should continue to loosen its monetary policy if threats to economic growth from international trade tensions and geopolitical instability strengthen the current disinflationary trends, governing council member Fabio Panetta said late last week.

GBP/USD climbed 0.2% to 1.3447, bouncing off a two-week low after Britain’s economy contracted for a second month running in May.

“Thursday sees some important U.K. labor market data,” said ING. “Should the May payroll release of -109k stay unrevised and should there be further payroll declines in June, U.K. rates and sterling could see another leg lower.”

Yuan muted despite data dump

Elsewhere, USD/CNY traded 0.1% higher to 7.1739, with the Chinese currency showing little reaction to a barrage of economic data.

China’s economy expanded 5.2% year-on-year in the second quarter of 2025, slightly above market expectations of 5.1%, supported by resilient exports and government stimulus.

The strong print reflected limited impact from the U.S. trade war, as steep tariffs were in place for only a month before a mid-May de-escalation.

Separate data released on Tuesday showed that the country’s industrial production ramped up more than expected in June, but retail sales rose less than forecast in June, while the unemployment rate remained steady at 5%.

USD/JPY traded largely unchanged at 147.71, while AUD/USD gained 0.3% to 0.6569.