Dollar Could Find Support if U.S. Core Inflation Remains Sticky in April

Dollar Could Find Support if U.S. Core Inflation Remains Sticky in April

The U.S. dollar may regain support if upcoming inflation data confirms that core price pressures remained sticky in April, according to Chris Turner, Global Head of Markets at ING. In a note to clients, Turner said that a persistently elevated core inflation reading would reinforce the market narrative that the Federal Reserve is in no hurry to begin cutting interest rates.

"Sticky inflation would feed into the story that the Federal Reserve is in no rush to reduce interest rates," Turner noted. Investors have already dialed back expectations for near-term monetary easing, with markets now anticipating the first rate cut no earlier than September.

According to a survey conducted by The Wall Street Journal, economists expect core inflation—excluding food and energy—to have risen 0.3% month-over-month in April, up from 0.1% in March. The data is scheduled for release at 1230 GMT and will be closely watched by traders and policymakers alike.

The dollar index (DXY) was down 0.2% on Tuesday at 101.541, pulling back from Monday’s one-month high of 101.977. The recent strength in the dollar came after the U.S. and China agreed to a 90-day tariff truce, which improved market sentiment but also prompted reassessment of inflation and rate expectations.

If core inflation surprises to the upside, it could stall or even reverse the dollar’s recent decline, as expectations of prolonged higher interest rates tend to support the currency. On the other hand, a softer inflation print could revive speculation about rate cuts sooner than September, potentially putting downward pressure on the greenback.