The dollar is falling ahead of inflation data due on Wednesday

NEW YORK (Reuters) – The dollar fell on Tuesday as investors waited for inflation data for more indications of whether price pressures are easing and what that means for more Fed rate hikes.

Wednesday’s consumer price data is expected to show headline inflation rose 0.2% in March, while core inflation rose 0.4%. (USCPI = ECI), (USCPF = ECI)

“A lot of traders are focusing on this inflation data,” said Edward Moya, senior market analyst at OANDA in New York. “Everyone is trying to understand whether deinflation is coming back, and that’s what complicates what the Fed is doing.”

The Fed is seen as likely to raise rates by an additional 25 basis points at its May 2-3 meeting, before pausing in June. Markets are also pricing the Fed into cutting interest rates by the end of the year due to an expected recession, although Fed officials have stressed the need to keep interest rates high in order to bring down inflation.

The strong jobs data for March added to expectations that the US central bank will continue to raise interest rates again. Friday’s data showed that employers added 236,000 jobs while the unemployment rate fell to 3.5%.

New York Federal Reserve Bank President John Williams said on Tuesday that the possibility of the Fed raising its benchmark interest rate just one more time and by an increase of 25 basis points is a useful starting point but that the central bank’s policy path will depend on incoming data.

Chicago Fed President Austin Goolsby said the US central bank should be cautious about raising interest rates in the face of recent bank pressures, noting that a drop in bank lending would help calm inflation and ease monetary policy.

Meanwhile, the Federal Reserve is on track to shrink its huge stockpile of cash and bonds for several more years, and will likely face several more years of negative net income as well, according to a report from the Federal Reserve Bank of New York.

The dollar index fell 0.26%, to 102.20. The euro rose 0.41% to $1.0906.

The euro was also likely to be supported by a rally in European bond yields on Tuesday as traders in the region returned after markets were closed on Friday and Monday for the Easter holidays.

Simon Harvey, head of forex analysis at Monex Europe, said algorithms that trade currencies based on the difference between European and US rates may sell euros for dollars when US Treasury yields rose after the jobs data while European bond markets were closed.

European bond yields rose sharply on Tuesday, making up for the breakout. GVD / EUR

“There’s just a catch-up effect flowing through,” Harvey said.

The dollar rose against the Japanese yen, after jumping on Monday as Bank of Japan Governor Kazuo Ueda signaled no rush to undo massive stimulus. The dollar was last up 0.08% against the Japanese currency at 133.73.

In cryptocurrency, Bitcoin broke the key $30,000 level for the first time in 10 months. It was up 1.9% today at $30,219.

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Coin offer prices at 2:38 PM (1838 GMT)

(Reporting by Karen Britel); Additional reporting by Elon John in London. Edited by Alexander Smith

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