Dollar holds tight range as investors await U.S. inflation data

• The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday

• The euro changed hands at $1.18105, having bounced back from Monday’s low of $1.17705

The dollar was little changed against other major currencies on Tuesday as investors looked to U.S. inflation data later in the session for clues on the timing of policy tightening by the Federal Reserve

The dollar index stood at 92.622, having retreated from a two-week high of 92.887 hit earlier on Monday while the euro changed hands at $1.18105, having bounced back from Monday’s low of $1.17705, its lowest since Aug. 27

An immediate focus is on U.S. consumer price data due at 1230 GMT

Economists expect core CPI, an index which strips out volatile energy and food prices, to have risen 0.3% in August from July. Its annual inflation is seen easing slightly to 4.2% from 4.3% in July

Overall consumer price inflation is expected to dip slightly to 5.3% from 5.4% in July

“With the core CPI still seen above 4%, inflation is at a very abnormal level. Powell has been saying inflation will be transient since March but the Fed will probably have to adjust its wording in the next policy statement,” said Yukio Ishizuki, senior strategist at Daiwa Securities

The Fed will hold its policy meeting next week. The Wall Street Journal reported on Friday that Fed officials will seek an agreement to begin paring bond purchases in November

“Tapering this year is a done deal. The next question will be whether the Fed will raise interest rates next year. Given persistent inflation, the Fed may not be able to afford to be relaxed about it for too long,” Ishizuki said

The yen eased slightly to 110.005 yen to the dollar but stayed in its familiar territory over the past few weeks around 110

Limited moves in the currency pair saw traders reducing expectations for market swings

Implied volatilities on dollar/yen options have fallen to historic levels, with one-month volatility falling to as low as 4.625%, its lowest since February last year just before the pandemic

Risk-sensitive currencies were little moved for now, with sterling at $1.3836 and the Australian dollar at $0.7362

While the world’s stock markets stood near record highs, supporting risk sentiment, some analysts warn of growing headwinds to risk sentiment

“Global risk appetite is edging toward a more tenuous and twitchy phase. A discordant G2 is increasingly the problem,” said Alan Ruskin, macro strategist at Deutsche Bank in New York

“The U.S.-China trade dispute has not found any resolution. On the contrary, market forces are dominating quantity targets, and widening bilateral balances will again prove a source of tension,” he added

Many investors were also keeping an eye on developments in China, where cash-strapped property developer Evergrande struggled to fend off solvency concerns while a relentless wave of regulatory moves by Beijing hit big tech firms

In the crypto market, Bitcoin dropped to as low as $43,400, its lowest in almost a week and last stood at $44,973 while ether also eased to $3,283