The US dollar held steady just below its three-week high against a basket of currencies on Tuesday, ahead of the release of inflation data in the United States, which is expected to guide traders regarding short-term interest rate prospects.

The dollar has received support in recent weeks from the gradual rise in US Treasury yields, as investors monitor the possibility that Federal Reserve Chair Jerome Powell may be forced to leave office early, amid repeated criticism from US President Donald Trump.

Meanwhile, the euro, British pound, and Swiss franc recovered slightly from losses recorded the previous day, ahead of a series of economic data releases later today, including US inflation figures and the German investor sentiment index.

The euro rose by 0.2% to $1.1688, ending a four-day losing streak.

Roberto Cobo, a strategist at BBVA, said: “The release of US Consumer Price Index (CPI) data today will be a pivotal moment for the EUR/USD exchange rate.”

He explained that if the inflation data comes in stronger than expected, it will strengthen the Fed’s case for delaying rate cuts, providing short-term support for the dollar. But if the data disappoints, it will be harder for the Fed to justify a “wait-and-see” stance, which may lead to a dollar decline.

The dollar was little changed against the Japanese yen at 147.71 yen, after earlier touching 147.89 yen — its highest level since June 23.

The dollar index — which measures the performance of the US currency against six major peers including the yen and euro — edged down slightly to 98.003, below its overnight peak of 98.136, the highest since June 25.

Jerome Powell had previously stated that he expects inflation to rise this summer as a result of tariffs, meaning the Federal Reserve may keep interest rates unchanged until later in the year.

According to a Reuters poll, economists expect headline inflation to rise to 2.7% year-over-year, up from 2.4% the previous month, while core inflation is expected to rise to 3.0% from 2.8%.

James Kniveton, senior FX dealer at Convera, wrote in a client note: “If inflation fails to show or remains flat, questions may arise over the Fed’s recent decision not to cut rates, potentially intensifying calls for monetary easing.”

He added: “Calls from the White House to change Fed leadership may increase.”

Trump renewed his criticism of Powell on Monday, reiterating that interest rates should be at 1% or lower, instead of the current range of 4.25% to 4.50%.

In the futures markets, traders expect the Fed to lower interest rates by about 50 basis points by year-end, with the first cut — a quarter point — likely to come in September.

Elsewhere, currencies showed little reaction to China’s GDP data, which showed 5.2% growth in the last quarter, exceeding analysts’ expectations — a sign of some resilience in the face of US tariffs.

However, analysts warned of underlying weakness and rising risks later this year, which may prompt Beijing to expand stimulus programs.

The Chinese yuan dipped slightly to 7.1766 per dollar in offshore trading before recovering slightly to 7.175.

The British pound also rose by 0.2% to $1.1687, ahead of the annual Mansion House speech to be delivered today by Bank of England Governor Andrew Bailey to London’s financial sector, alongside UK Chancellor Rachel Reeves.

Gold prices rose in the European market on Tuesday, resuming their gains after a temporary pause the previous day, approaching the highest level in three weeks, supported by the current decline in US dollar levels in the foreign exchange market.

This comes ahead of the release of key inflation data in the United States later today, which will provide strong clues regarding the likelihood of US interest rate cuts during the second half of this year.

The Price

• Gold prices today: Gold prices rose by about 0.7% to $3,365.65, from the opening level of $3,343.57, and recorded the lowest level at $3,341.33.

• Upon settlement on Monday, gold prices lost 0.35% — the first loss in the last four days — due to correction and profit-taking, after earlier touching a three-week high of $3,375.01 per ounce during the session.

US Dollar

The dollar index fell on Tuesday by 0.2%, retreating from its highest level in three weeks at 98.14 points, reflecting a decline in US currency levels against a basket of major and minor currencies.

Aside from profit-taking, the dollar is weakening due to reluctance to build new long positions ahead of the release of key US inflation data.

US Interest Rates

• US President Donald Trump renewed his criticism of Federal Reserve Chair Jerome Powell on Monday, saying that interest rates should be at 1% or lower.

• According to the FedWatch tool from CME Group: The probability of a 25-basis-point interest rate cut at the July meeting is currently priced at 5%, while the probability of holding rates steady stands at 95%.

• The probability of a 25-basis-point cut at the September meeting is currently priced at 62%, while the probability of no change is at 38%.

• According to data from the London Stock Exchange, traders are currently pricing in about 50 basis points of rate cuts by the end of the year, with the first quarter-point cut expected in October.

US Inflation Data

To reprice the above probabilities, traders are awaiting the release of key US inflation data for June later today, which is expected to significantly influence the Federal Reserve’s monetary policy path.

At 13:30 GMT, the Consumer Price Index (CPI) is expected to show an annual increase of 2.6% in June, up from 2.4% in May, while the Core CPI is expected to rise by 3.0% annually, up from 2.8% in the previous month.

Outlook for Gold Performance

• Chief Market Analyst at KCM Trade, Tim Waterer, said: "Gold has proven in the past to be a preferred asset during rising tensions over tariffs, and the precious metal’s move toward $3,350 is evidence of that pattern repeating."

• He added: "However, the rise in US Treasury yields and the strengthening of the US dollar have created headwinds... and for gold to advance further toward $3,400, it may require a retreat in the value of the US dollar or Treasury yields in the absence of any intensifying geopolitical events."

The British pound rose in the European market on Tuesday against a basket of global currencies, holding above its lowest level in three weeks against the US dollar recorded earlier in Asian trading, on track to achieve its first gain in the last eight days, amid active buying from low levels.

Governor Andrew Bailey stated that the Bank of England may cut interest rates at a faster pace if the labor market slows, which led to a rise in the likelihood of a 25-basis-point cut in UK interest rates at the upcoming August 7 meeting.

The Price

• GBP/USD exchange rate today: The pound rose against the dollar by about 0.2% to $1.3454, from the opening level of $1.3432, and recorded the lowest level at $1.3422 — the lowest since June 23.

• The pound lost 0.5% against the dollar on Monday, marking its seventh consecutive daily loss — the longest losing streak since July 2023 — due to comments by the Bank of England Governor.

Andrew Bailey

Bank of England Governor Andrew Bailey told The Times on Monday that the direction of interest rates is definitely downward. In the interview, he gave a strong signal that the bank would accelerate the pace of interest rate cuts if more signs of "slack" appear in the economy.

The term "slack" refers to a scenario in which the economy is not operating at full capacity, with rising unemployment and slowing output. This is considered deflationary and would boost the central bank's confidence that inflation will fall to 2.0% in 2026, as currently expected.

UK Interest Rates

• Traders are increasing their bets that the Bank of England will ease interest rates, now expecting at least an additional 50 basis points of cuts this year.

• The pricing of a 25-basis-point cut at the Bank of England’s August meeting currently stands above 80%.

UK Labor Market

The UK labor market report, due Thursday, is equally important for the British pound, as it is expected to provide further indicators of a slowdown in the UK labor market.

There are persistent signs that the jobs tax imposed by Rachel Reeves is weighing on the labor market, and more job losses are likely.

Traders’ main challenge lies in the chaos of UK labor market statistics, as some elements of the survey are now considered inaccurate.

A weak jobs report would provide additional evidence for the Bank of England that the economic slowdown is unfolding, prompting further rate cuts.

With renewed attention in foreign exchange markets on relative interest rates, an acceleration in Bank of England rate cuts would harm the British pound.

The Japanese yen declined in the Asian market on Tuesday against a basket of major and minor currencies, deepening its losses for the third consecutive day against the US dollar and hitting its lowest level in three weeks, amid negative pressure on the Japanese currency and expectations of further declines toward the 150 yen barrier.

Markets are awaiting the release later today of key US inflation data for June, which will provide strong clues about the likelihood of US interest rate cuts during the second half of this year.

Despite rising expectations for a Japanese interest rate hike at the meeting later this month, the market is still awaiting the release of more significant economic data from Tokyo regarding inflation, wages, and unemployment levels in the world’s third-largest economy.

The Price

• USD/JPY exchange rate today: The dollar rose against the yen by 0.15% to ¥147.89 — the highest since June 23 — from today’s opening level of ¥147.69, with a low of ¥147.65.

• The yen lost 0.2% against the dollar at Monday’s settlement, marking its second consecutive daily loss due to rising US yields.

Negative Pressure

The Japanese currency is currently facing increased negative pressure, particularly due to the difficult trade negotiations between the United States and Japan, in addition to the rise in the yield on US 10-year Treasury bonds.

Amid these pressures, some global forecasts point to further declines in the yen exchange rate toward the barrier of 150 yen per one US dollar.

US Dollar

The US Dollar Index rose on Tuesday by about 0.1%, extending its gains for the fourth consecutive session and reaching a three-week high at 98.14 points, reflecting continued strength in the US currency against a basket of major and minor currencies.

This rise comes amid a fresh jump to a four-month high in the yield on 10-year US Treasury bonds, as expectations for Federal Reserve interest rate cuts have weakened.

To reassess those expectations, markets await later today the release of key US inflation data for June.

Federal Reserve Chairman Jerome Powell stated that he expects inflation to rise this summer due to tariffs, which is expected to keep the US central bank’s interest rates unchanged until later this year.

Japanese Interest Rate

• Recent data released in Tokyo showed increased pressure on policymakers at the Bank of Japan.

• Amid this data, the pricing of expectations for the Bank of Japan to raise interest rates by a quarter percentage point in the July meeting rose from 35% to 45%.

• To reassess those expectations, investors are awaiting further data on inflation, unemployment, and wage levels in Japan.