Investing.com – The dollar index and dollar index futures edged down slightly in European trade on Wednesday after slipping from a four-month high in the prior session.
Traders had previously piled into the greenback amid bets that Trump will introduce more expansionary policies, potentially underpinning inflation in the coming years.
However, this trade paused on Wednesday, with the focus turning to key upcoming consumer price index data later in the day. The reading is expected to show inflation remained sticky in October.
The October consumer price index reading also comes after Minneapolis Fed chief Neel Kashkari warned on Tuesday that any increases in inflation could see the Fed keep rates on hold.
His comments saw traders trim bets on a 25 basis point cut in December, with traders pricing in a 64.2% chance for a cut, down from yesterday’s 66.7% probability of a cut, according to CME Fedwatch.
“The strong dollar is currently pricing in a good deal of Trump’s policy mix, and data releases/dovish Fed comments might offer good opportunities to take profit in bullish dollar positions,” said analysts at ING, in a note.
Meanwhile, in a note to clients on Wednesday, analysts at Bank of America Securities led by Athanasios Vamvakidis said while they expect Trump’s plans to introduce tax reductions and impose strict levies on imports coming into the US could provide support to the dollar in the short-term, they are not sure about its prospects over a longer term.
“[T]he fiscal policy stance under the new Trump administration in the US remains an open question,” the analysts said.
“Pre-election promises included both tax cuts and spending cuts. The market has assumed an inflationary impact, further fiscal policy loosening on the back of tax cuts, but could be surprised by fiscal policy tightening from spending cuts.”