Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred gauge of inflation showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the Fed may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, EUR/USD fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President Christine Lagarde said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The ECB lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
GBP/USD traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in gross domestic product output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
Bank of England policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, USD/JPY rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
USD/CNY edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
