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DOLLAR HOVERS NEAR TWO-DECADE HIGH BEFORE INFLATION GAUGE

The dollar hovered near a two-decade high against major peers on Wednesday, ahead of a key reading on inflation that should provide clues on how aggressive the Federal Reserve will be in tightening monetary policy.

The dollar index, which measures the currency versus six rivals, was around flat at 103.92, not far from the high of 104.49 reached at the start of the week for the first time since December 2002.

The euro languished at 1.05305, continuing to trade mostly sideways since plumbing a more than five-year low at 1.04695 at the end of last month.

The yen continued to get some respite from a pause in the recent relentless rise in benchmark US Treasury yields, trading little changed at 130.40 per dollar, after dipping to a more than two-decade low of 131.35 on Monday.

Investors will be closely watching the April US consumer price index reading later on Wednesday for any signs inflation may be starting to cool, with expectations calling for a 8.1% annual increase compared with an 8.5% rise recorded in March.

“This USD’s reaction to the CPI will be asymmetrical in our view,” CBA currency strategist Joseph Capurso wrote in a client note.

“A positive surprise will encourage markets to increase pricing for a 75 (basis point) increase in the Funds rate later in the year and support the USD, while a negative surprise will keep pricing for 50 bp increases in June and July intact and leave the USD steady.”

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