Dollar Steadies Ahead of Inflation and ADP Data

Today’s markets analysis on behalf of Konstantinos Chrysikos Head of Customer Relationship Management at Kudotrade

The US dollar traded in a narrow range on Tuesday, as investors awaited key economic data that could shape expectations for Federal Reserve monetary policy and inject volatility into both bond and foreign exchange markets in the case of a surprise.

Later today, inflation data will be released, with headline CPI expected to remain stable at 2.7% year-on-year. A downside surprise could weigh on the dollar and yields, as market participants may reinforce dovish expectations and increase confidence in further rate cuts. By contrast, signs of persistent inflation would likely lend support. Currently, expectations point to two rate cuts by the end of the year.

Attention is also on the ADP Employment Change Weekly report. Last week, private payrolls increased by 11.5K jobs. A weaker reading today could further dent sentiment, particularly after last week’s soft nonfarm payrolls report raised concerns about labor market momentum.

Comments from New York Fed President John Williams on Monday offered some support to the dollar and yields. Williams said he expects the US economy to remain healthy in 2026 and sees no near-term reason to cut interest rates. He noted that monetary policy has moved from a modestly restrictive stance closer to neutral and is now well positioned to stabilize the labor market while guiding inflation back toward the Fed’s 2% target.

Beyond macro data, investors continue to monitor developments surrounding the investigation involving Fed Chair Jerome Powell. Any perception that the Federal Reserve’s independence is being compromised could undermine investor confidence and weigh on dollar-denominated assets in the near term.