Dollar slips lower ahead of inflation release; euro gains

Investing.com - The U.S. dollar edged lower in early European trade Thursday ahead of a key U.S. inflation release, while the euro rebounded after weakness inspired by Italian banking woes.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 102.245 but remains on course for a fourth straight weekly gain. 

Dollar slips ahead of U.S. CPI release

The dollar remains near five-week highs, but traders have banked some recent gains ahead of the release of the latest U.S. consumer price index reading.

The headline annual CPI figure is forecast to pick up slightly in July to 3.3%, while the core rate, which excludes volatile food and energy prices, is forecast to climb 4.8% on an annual basis.

The Federal Reserve next meets in September and a subdued inflation release could cement expectations that the policymakers will agree to end its interest rate hikes.

Fed policymakers have hinted at this earlier this week, with Philadelphia Fed President Patrick Harker suggesting interest rates are high enough already, echoing the view of Atlanta Fed President Raphael Bostic.

Euro helped by Italian tax clarification

EUR/USD rose 0.2% to 1.0999, helped by improved risk sentiment after the Italian government clarified its stance on a windfall bank tax, saying it would not amount to more than 0.1% of their total assets.

“This is one interesting thread to monitor, should the Italian government's decision fuel a bank profit windfall tax debate in other countries, and/or whether banks will pre-empt facing new taxation by raising deposit rates,” said analysts at ING, in a note.

“The implications can be non-negligible from a monetary policy transmission perspective and for the euro. In the near term, the relevance of relative equity performance for EUR/USD should keep it quite sensitive to the matter.”

Yen close to one-month low

Elsewhere, GBP/USD gained 0.1% to 1.2732, while USD/JPY rose 0.2% to 143.95, with the yen near a one-month low, even as data showed that producer inflation rose slightly more than expected in the 12 months to July.

The yen remains pressured by expectations that the Bank of Japan will be slow to exit stimulus, even with the Federal Reserve close to ending its rate-hiking cycle.

USD/CNY fell 0.1% to 7.2054 after the People’s Bank of China set a stronger-than-expected daily midpoint. Media reports also suggested that the Chinese government had begun selling dollars on the open market to buoy the yuan this week.