Dollar on track for weekly loss; CPI data in spotlight

The U.S. dollar edged higher Friday, but was struggling to make much headway ahead of the release of U.S. inflation data later in the day, which is likely to shape the Federal Reserve’s rate outlook.

At 03:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 96.975, but was on course for a weekly loss of around 0.6%.

CPI release looms large 

The focus Friday is squarely on upcoming consumer price index inflation data for January, as traders seek more information about the likely path of U.S. interest rates as the year progresses.

Market consensus is for a mild easing in the headline and core CPI releases, but traders were on guard over any hawkish surprises, especially given that inflation data has beaten estimates in January over the past four years. 

“Today’s U.S. CPI report is likely to have a smaller market impact than Wednesday’s payrolls. The Federal Reserve has been signalling little urgency to cut again, and it’s mostly the jobs market that can move the needle,” said analysts at ING, in a note.

The dollar took some support earlier in the week from the release of stronger-than-expected nonfarm payrolls data for January, but remains under pressure from growing uncertainty over U.S. monetary policy, especially in the wake of Kevin Warsh’s nomination as the next Chairman of the Federal Reserve.

“The price action of this week strongly suggests an inclination to sell the USD rallies, and we struggle to see the dollar recover substantially from here,” ING added.   

Euro awaits growth data  

In Europe, EUR/USD traded 0.1% lower to 1.1858, ahead of the release of the flash estimate of Eurozone GDP growth for the fourth quarter, which is expected to show that the euro region grew 0.3% on the quarter, resulting in annual growth of 1.3%.

Also of interest will be scheduled comments from ECB Vice President Luis de Guindos. 

“The latest comments by other members have gone under the radar, with no clear dissenting opinions to the dominating neutral stance. Incidentally, there have been very few follow-up comments on the euro’s strength after the meeting. Overall, very few reasons to revise rate expectations, and this should remain the case for some time,” said ING.

GBP/USD traded marginally higher to 1.3623, struggling to post gains this week following the release of weak fourth-quarter growth data as well as renewed U.K. political turmoil.