TOKYO- The dollar dipped to a one-month low versus the euro on Wednesday amid lower Treasury yields as traders braced for a key US inflation report later in the day that could dictate the path of Federal Reserve policy.
However, the yen hovered close to a two-week low as a still-gaping yield gap between local bonds and US peers continued to encourage selling of the Japanese currency.
The euro edged up 0.03 percent to $1.0823 in Asian trading hours, and earlier rose to $1.0828 for the first time since April 10.
The US dollar index – which measures the currency against six top rivals, but is heavily weighted towards the euro – eased 0.11 percent to 104.94, after dipping to a 1-1/2-week low of 104.92 earlier.
The benchmark long-term US Treasury yield edged down to 4.4414 percent , extending a 3-1/2-basis point (bp) retreat overnight.
Wednesday’s report on core consumer prices is expected to show CPI rose 0.3 percent month-on-month in April, down from a 0.4 percent growth the previous month, according to a Reuters poll.
“The market is going to sink or swim together,” Deutsche Bank strategist Alan Ruskin wrote in a note, pointing out the “extremely rare” concentration of analysts’ forecasts at 0.3 percent .
He noted that rate path expectations are “a little more sticky than usual” and would require more than a single modest upside or downside surprise to swing markets considerably.
However, in the event of “a large upside miss” of 0.5 percent or more, “early thoughts of the next move possibly being a hike would create a very large scale repricing of rates and a major USD surge against all currencies,” he said.
