U.S. Dollar Dips As Slowdown In Inflation Reinforces Fed Pause Bets

(RTTNews) - The U.S. dollar was lower against its most major counterparts in the European session on Tuesday, as softer-than-expected inflation data for May supported expectations that the Federal Reserve will pause rate increases at its monetary policy decision due Wednesday.

Data from the Labor Department showed that U.S. consumer price inflation rose less than expected in May.

The consumer price index inched up by 0.1 percent in May after climbing by 0.4 percent in April. Economists had expected prices to tick up by 0.2 percent.

Excluding food and energy prices, core consumer prices rose by 0.4 percent in May, matching the increase seen in each of the two previous months as well as economist estimates.

The Labor Department also said the annual rate of consumer price growth slowed to 4.0 percent in May from 4.9 percent in April. Economists had expected the pace of growth to slow to 4.1.

The year-over-year growth in May marked the smallest annual increase since the period ending March 2021.

The annual rate of core consumer price growth also slowed to 5.3 percent in May from 5.5 percent in April, in line with expectations.

The Fed will conclude its two-day meeting tomorrow, with economists expecting a pause in interest rate increases amid signs of cooling inflation and slowing economic growth.

CME Group's FedWatch Tool indicates a 93.1 percent chance of the Fed leaving interest rates unchanged.

The greenback depreciated to near a 5-week low of 1.2605 against the pound and a fresh 3-week low of 1.0823 against the euro, from yesterday's closing values of 1.2505 and 1.0756, respectively. The greenback is likely to challenge support around 1.27 against the pound and 1.10 against the euro.

The greenback fell to near a 5-week low of 0.6806 against the aussie and near a 3-week low of 0.6177 against the kiwi, from Monday's close of 0.6749 and 0.6120, respectively. The greenback may face support around 0.69 against the aussie and 0.63 against the kiwi.

The greenback was down against the loonie, at near a 2-month low of 1.3310. The pair was worth 1.3367 at yesterday's close. If the currency falls further, 1.30 is likely seen as its next support level.

The greenback declined to 0.9031 against the franc from its previous close of 0.9089. Further fall in the greenback may find support around the 0.88 mark.

In contrast, the greenback rebounded to 139.94 against the yen, from a 4-day low of 139.01 hit at 9:05 am ET. The pair touched a 5-day high of 139.97 immediately after the data. The pair had finished yesterday's trading session at 139.60. Next key resistance for the currency may be located around the 145.00 level.