By Peter Nurse
Investing.com – The U.S. dollar edged higher in early European trade Monday, with traders expecting the release of key U.S. inflation data this week to boost the chances of early Federal Reserve interest rate hikes.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 95.915.
rose 0.2% to 115.78, close to last week’s five-year high of 116.35, fell 0.2% to 1.1332, edged higher to 1.3588, while the risk-sensitive climbed 0.2% to 0.7195.
The greenback is recovering from Friday’s hit after a weaker-than-expected U.S. for December, with attention now firmly switching towards the release of key December inflation data.
“The key for Fed policy now is not the labor market but inflation, and this week’s December CPI report is expected to show further acceleration,” said Marc Chandler, Chief Market Strategist at Bannockburn Global Forex.
“Even after the employment report, the December Fed Funds contract showed increased wagers of four hikes this year. The probability of a fourth hike is now slightly over 50% compared with a 40% of a third hike after the November jobs report on December 3.”
The data, on Wednesday, is expected to show headline CPI breaking above 7% year-on-year, approaching a four-decade high, while data the following day is also expected to show a surge higher.
Fed Chairman Jerome Powell and governor Lael Brainard will also testify before Senate committees this week regarding their nominations as the Fed chair and deputy chair respectively.
Their comments over the potential for the central bank to tighten monetary policy this year will be closely studied, and they are the highlight of a week in which there will be numerous Fed speakers.
Also helping the dollar Monday are the continued tensions between the U.S. and Russia, primarily, over the former Soviet state’s intentions towards Ukraine.
Talks between the two principals begin on Monday in Geneva before moving to Brussels and Vienna, but Russia said on Sunday it would not make concessions under U.S. pressure and warned that the negotiations might end early.
Elsewhere, rose 0.3% to 4.3613 with Romania’s central bank expected to lift interest rates later Monday to try and tackle soaring inflation in line with its peers in the region.
The central bank is seen increasing its benchmark rate by 50 basis points to 2.25%, according to six of 11 economists surveyed by Bloomberg. The other five predicted a rise to 2%. Poland has already raised interest rates this year.
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