Traders have turned somewhat cautious towards the US dollar ahead of the release of inflation data as they wait to see if it would impact the Fed’s timeline on announcing its first rate hike since the pandemic. At the time of writing, the US dollar index DXY is trading around 93.99.

Before the release of the US CPI on Wednesday, we will also get a look at consumer prices and producer prices from China. Both sets of economic data are likely to show rising inflationary pressures which could potentially derail the progress made so far in recovering from the pandemic and possibly convince the respective central banks to step in with measures.

Economists’ expectations for a strong inflation reading in the US have pressured bond yields and the dollar during the previous session, causing them to experience a small dip. Despite this, the greenback remains close to the year’s high touched on Friday, following the release of a better than expected non-farm payrolls report for October.

The US dollar is holding steady against the common currency and even the safe haven Japanese yen, with investors hesitant to enter new positions ahead of the CPI figures. However, the reserve currency has shown slight weakness against commodity currency NZD over expectations that the RBNZ could announce a 50bp rate hike at its upcoming meeting.

Meanwhile, an improvement in the risk sentiment has helped AUD also register slight gains against the USD, holding above the $0.74 level. GBP/USD has also picked up, rising above the $1.35 level, after going under this last week when the BOE chose to hold interest rates steady.