USD firmed against most of its major rivals in the European session on Friday as investors prepared for the release of the U.S. May inflation data and the meeting of the Federal Reserve next week.
The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, rose 0.19% to 103.54.
Yesterday’s jobless claims data, which showed a much-bigger-than-anticipated jump in initial filings for jobless benefits last week, heightened expectations of a pause in rate hikes at the Fed’s meeting next week, which decreased marginally earlier this week in response to surprise rate hikes by the central banks of Australia and Canada.
According to CME FedWatch Tool, markets now price in a 77.1% probability that the U.S. central bank’s policymakers will leave key rates unchanged at their June meeting. As for the July meeting, markets see a 65% chance that the rate-setters will resume rate hikes with either a quarter-point (52.5%) or a half-point (12.5%) increase.
Investors’ focus now turns to the U.S. May CPI report, the publication of which is scheduled for next Tuesday - the same day when the Fed’s two-day meeting is set to start. Economists expect the report will show a 0.3% m/m gain in headline CPI and a 0.4% m/m advance in core CPI. Hotter-than-expected data might prompt the Fed’s policymakers to approve another rate hike.