By Jaspreet Kalra
SINGAPORE (Reuters) -The dollar nudged higher on Friday heading into a key U.S. inflation measure that may influence bets on a rate cut by the Federal Reserve next month which have put the currency on course for a 2% decline in August against a basket of peers.
The euro was down 0.2% at $1.1662 and sterling fell 0.4% to $1.3450. Against the yen, the dollar was up 0.2% to 147.255 yen.
Money markets are currently pricing in an 86% chance of a rate cut in September, up from 63% a month earlier, CME’s FedWatch tool showed.
The U.S. core personal consumption expenditure price index is expected to show a 0.3% month-on-month rise for July, according to forecasts by economists polled by Reuters.
While the data may contain limited fresh cues on the impact of tariffs, disappointments on personal income and personal spending measures are likely to garner the larger market reaction, given the focus on the health of the U.S. consumer, analysts at Goldman Sachs said in a note.
Alongside expectations of rate cuts, President Donald Trump’s campaign to exert more influence over monetary policy, including this week’s attempt to fire Lisa Cook, one of the Fed’s governors, has weighed on the dollar.
Cook filed a lawsuit claiming Trump has no power to remove her from office and also filed a motion for a temporary restraining order, the hearing for which is scheduled for Friday.
EU INFLATION
The legal battle is the latest chapter in Trump’s attempts to reshape the central bank after repeatedly criticising the Fed and its Chair Jerome Powell for not cutting interest rates.
“While markets remain reluctant to speculate on this Fed story and continue to focus on data-driven short-term developments, the downside risks for the dollar have undoubtedly grown,” Francesco Pesole, an FX strategist at ING, said in a note.
Fed Governor Christopher Waller said on Thursday he wanted to start cutting rates next month and “fully expects” more rate cuts to follow to bring the central bank’s policy rate closer to a neutral setting.
Elsewhere, euro zone consumers kept their inflation expectations mostly stable at or above the European Central Bank’s 2% target in July, according to an ECB poll released on Friday.
Data released on Friday also showed that French consumer prices rose slightly less than anticipated in August while Spain’s European Union-harmonised 12-month inflation rate was steady at 2.7%.
“We don’t think there will be much in the data to convince markets to materially reprice ECB rate expectations just yet,” Pesole said.
Among other currencies, the New Zealand dollar, was slightly stronger after Reserve Bank of New Zealand Chairman Neil Quigley tendered his resignation, citing the fallout over the handling of the sudden resignation of the central bank’s governor earlier this year.
China’s yuan hit its strongest level in 10 months against the dollar as steady central bank fixings and a hot domestic stock market drive the currency higher, while the Indian rupee dropped to a record low, weighed down by worries about the economic impact of steep U.S. tariffs on Indian imports.
(Reporting by Jaspreet Kalra; Editing by Shri Navaratnam, Jamie Freed and Alison Williams)
