US dollar index dips ahead of crucial inflation data on Wednesday

The US dollar dipped on Tuesday as investors waited on inflation data for further signs of whether price pressures are ebbing and what it means for further Federal Reserve interest rate hikes.

The dollar index fell 0.26 per cent to 102.20. The euro gained 0.41 per cent to $1.0906.

The euro was also likely boosted by a rise in European bond yields on Tuesday as traders in the region returned after markets were closed on Friday and Monday for the Easter holiday.

Meanwhile, the rupee depreciated 13 paise to close at 82.12 (provisional) against the US currency on Tuesday as dollar demand from importers weighed on investor sentiments.

During the day, the rupee witnessed a high of 81.96 and a low of 82.15 against the greenback.

The dollar edged higher against the yen, after jumping on Monday as Bank of Japan Governor Kazuo Ueda signaled no hurry to dial back its massive stimulus. The dollar was last up 0.08 per cent against the Japanese currency at 133.73.

Consumer price data on Wednesday is expected to show headline inflation rose by 0.2 per cent in March, while core inflation rose 0.4 per cent.

The US Fed is seen as likely to hike rates by an additional 25 basis points at its May 2-3 meeting, before pausing in June.

Markets are also pricing for the Fed to cut rates by year-end on an expected recession, though Fed officials have stressed the need to keep rates high in order to bring down inflation.

Strong jobs data for March have added to expectations that the US central bank will complete one more rate hike.

The data on Friday showed employers added 236,000 jobs while the unemployment rate fell to 3.5 per cent.

Algorithms trading currencies based on the difference between European and U.S. rates might have sold euros for dollars when US Treasury yields rose after the jobs data while European bond markets were closed, said Simon Harvey, head of FX analysis at Monex Europe.

European bond yields rose sharply on Tuesday, catching up after the break. GVD/EUR.

With Reuters Inputs