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US Dollar Takes a Breather Amid Fed Rate Hike Hints and Inflation Data

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The US dollar took a pause on Monday after a drop last week when the Federal Reserve hinted at an end to the US rate increase cycle. Traders are now turning their focus to US inflation and bank lending data for the week ahead. Meanwhile, the Sterling was hovering just below an 11-month high hit on Friday, ahead of an expected Bank of England rate increase on Thursday.

The Euro, which has rallied nearly 16% from September lows, was losing momentum and struggling to break resistance at $1.11. The yen slipped slightly, reflecting Friday’s move higher in US bond yields that followed strong jobs data. The dollar/yen was last 0.2% higher at 135.05.

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Last week, the Federal Reserve and the European Central Bank each raised rates by 25 basis points and offered varying degrees of caution about the outlook. This was taken as a signal that rate rises are slowing or stopping. U.S. interest rate futures are pricing about a one-third chance of a rate cut as soon as July.

The US dollar index dropped for a second week in a row last week, losing about 0.4%. The Antipodean currencies also logged solid gains last week, but remain short of clear breaks into new territory.

For the most part, traders are watching headlines from Capitol Hill as lawmakers attempt to negotiate an impasse over the looming US debt ceiling, with the Treasury Secretary warning the government might be unable to pay debts by June 1.

Later in the week, US inflation data is due on Wednesday, which could impact the dollar. In summary, traders are keeping a close eye on the economic data and political developments that could potentially impact the currency markets.

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