Dollar slips; traders assess Fedspeak ahead of CPI release By

© Reuters.

By Peter Nurse – The U.S. dollar slipped lower in early European trade Thursday, with traders digesting a series of comments from Federal Reserve policymakers ahead of next week’s crucial inflation data release.

At 03:10 ET (08:10 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.140, retreating from the one-month high of 103.96 it reached on Tuesday.

The index slipped back a little earlier in the week after Fed chair reaffirmed that a process of disinflation was underway, declining to push back strongly against easing rate expectations after the surprisingly strong U.S. .

That said, a number of his colleagues were keen to point out on Wednesday that more interest rate hikes were needed to fully gain control of inflation.

Fed Governor stated that “we have farther to go” to fight inflation, while New York Fed President said the U.S. central bank still probably needs to raise its key interest rate above 5%.

The raised the target range for fed funds by 25 basis points last week to 4.50-4.75%.

“We think markets may feel relatively comfortable with the current pricing for a 5.15% peak rate for now, even though risks are skewed towards another 10bp of tightening being added into the curve,” analysts at ING said, in a note. “This means that the dollar’s upward correction may have a bit more to run, but we doubt this will morph into a sustained USD uptrend from this point on.”

This puts next week’s U.S. release for January firmly in the spotlight, as traders look for additional clues on the policy outlook.

Elsewhere, traded 0.3% higher at 1.0741, finding support from the likelihood of further interest rate hikes by the after remained elevated.

Germany’s harmonized CPI fell to 9.2% from 9.6% in January, slowing to the lowest level in five months, thanks to further government aid to ease the pain from soaring energy costs.

That said, remains stubbornly high, which could prompt the Eurozone’s central bank to continue hiking interest rates into May, ECB policymaker Klaas Knot said on Wednesday.

rose 0.3% to 1.2104, fell 0.3% to 131.01, while the risk-sensitive rose 0.7% to 0.6974.

fell 0.3% to 10.5560 ahead of the latest policy-setting meeting of Sweden’s .

A hike of 50 basis points to 3.0% is widely expected, but both the governor and deputy are new to the roles, so a degree of uncertainty remains over the path they will choose.