Currency markets brace for US inflation data
A moderate reading on U.S. price pressures could cement bets for a Fed rate reduction next month, which increased after last week's soft payrolls data.
But if signs emerge that U.S. President Donald Trump's tariffs are stoking inflation, that could pressure the central bank to stay on hold, though the bar for that is higher. That in turn would fuel further tensions with Trump, who has urged the Fed to cut rates.
Economists polled by Reuters expect core CPI to have risen 0.3% in July, pushing the annual rate higher to 3%, and traders currently put the odds of a quarter-point rate cut on September 17 at about 89%, and are fully pricing two such cuts by year end.
"The $1 million question for the market (is) does CPI today matter for the Fed in September and beyond," said Kenneth Broux, head of corporate research FX and rates at Societe Generale.
He said given market pricing, "it's a big ask for today's CPI and the one next month to challenge the dovish set-up".
Ahead of the data, due at 1230 GMT, the dollar was up 0.2% against the yen at 148.43, while the euro was marginally softer at $1.1609.
Sterling was among the bigger movers, up 0.2% on the dollar at $1.3460 after data that showed Britain's jobs market weakened further, albeit more slowly, while wage growth stayed strong - the latter underscoring why the Bank of England is so cautious about cutting interest rates.
The numbers ought not to cause the Bank of England to accelerate the speed of its rate cuts. The BoE cut rates only last week in a tight 5-4 vote.
Sanjay Raja, chief UK economist at Deutsche Bank, said there were "marginal positives" in the data and there was nothing to suggest labour market loosening was accelerating, but he added "we aren't out of the woods yet".
He expects the BoE to continue loosening policy gradually.
The Australian dollar fetched $0.6493, down 0.3%, after the Reserve Bank of Australia's widely-expected decision to cut rates by a quarter point. The central bank cited a slowdown in inflation and a looser labour market, though it was cautious on prospects for further easing.
"We remain of the view that a follow-up cut in November is more likely than not, with the cash rate to then stay at 3.35% for an extended period," said Adam Boyton, head of Australian economics at ANZ, in a note.
Currency markets largely ignored Trump's decision to extend a pause in sharply higher tariffs on Chinese imports for another 90 days, as widely expected.
With the U.S. and China seeking to strike a deal averting triple-digit import tariffs, a U.S. official told Reuters that chip makers Nvidia and AMD had agreed to allocate 15% of China sales revenues to the U.S. government, aiming to secure export licences for semiconductors.
China's yuan was flat at 7.195 per dollar in offshore trading.
Cryptocurrency bitcoin was flat around $118,400, after climbing as high as $122,308.25 on Monday, taking it close to the all-time peak of $123,153.22 from mid-July.
(Reporting by Kevin Buckland in Tokyo and Alun John in London; Editing by Kim Coghill, Mark Potter and Emelia Sithole-Matarise)
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