Dollar slips lower ahead of CPI release; euro awaits ECB decision

Investing.com - The U.S. dollar slipped lower Thursday as a benign producer price release added to rate cut expectations, putting the spotlight onto U.S. consumer price data as well as a policy-setting meeting by the European Central Bank later in the day. 

At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 97.510, reversing earlier gains at the start of the week. 

Dollar awaits key CPI release

The U.S. currency was hit Wednesday after the release of softer-than-expected U.S. PPI inflation data furthered bets that the Federal Reserve will cut interest rates when it meets next week.

“U.S. PPI came in notably subdued, falling -0.1% MoM for both headline and core measures,” said analysts at ING, in a note. “The key driver was a sharp -1.7% MoM drop in “trade services”– a proxy for corporate profit margins. This suggests that, for now, firms are absorbing higher input costs linked to tariffs rather than passing them on to consumers.”

Attention now turns to the release of the more widely-watched consumer price index for August later in the session.

Headline CPI is expected to have risen 2.9% in August from a year earlier, the fastest pace since January, while the core measure likely held at 3.1%.

A quarter-point rate cut from the Fed next week is more than fully priced in, and thus it would take a severe increase to derail such a move.

“We believe the risks are skewed to the downside for the dollar today, as relatively benign CPI data could give the go-ahead to re-enter USD shorts that might have been partly held back ahead of the release,” added ING.

The dollar had seen some gains earlier in the week, as traders sought out the safe haven after Poland scrambled its own and NATO air defences to shoot down drones following a Russian air attack on western Ukraine.

ECB meeting looms 

In Europe, EUR/USD slipped marginally to 1.1693 ahead of the conclusion of the latest European Central Bank policy-setting meeting, with policymakers widely expected to leave interest rates unchanged.

The ECB halved its key rate to 2% in the year to June, but has been on hold ever since as inflation has returned to target and growth has stabilized.

However, the uncertainty surrounding U.S. President Donald Trump’s 15% tariffs on European Union imports, coupled with an already low growth rate and fresh political turmoil in France, the region’s second-largest economy, suggests the ECB will keep alive the prospect of further easing.

“We expect a quiet meeting with contained FX impact potential,” said ING. “If anything, we could see some euro softening as any comments on French bonds might be read as dovish indications. For now, we are looking at a re-stabilisation in the 1.170-1.175 area in EUR/USD ahead of the weekend.”

GBP/USD traded 0.1% lower to 1.3514, trading in a tight range ahead of next week’s key jobs and inflation numbers for August. 

Yen slips after PPI data 

Elsewhere, USD/JPY gained 0.2% to 147.77, after data showed PPI inflation fell 0.2% month-on-month in August, slightly more than expectations for a drop of 0.1%. But year-on-year PPI grew slightly to 2.7%. 

The print showed wholesale inflation in Japan remained relatively sticky – a trend that could spill over into CPI inflation, data on which is due next week.

USD/CNY traded marginally higher to 7.1227, with the pair rising from a 10-month low in the prior session, as softer-than-expected inflation data weighed on the Chinese currency.

AUD/USD slipped 0.2% to 0.6607, consolidating after the Australian dollar climbed to a 10-month high earlier in the week.