Dollar set to post the worst month in a decade ahead of Powell speech

In a bid to stand ahead of a speech by Fed Chair Jerome Powell on Wednesday, the dollar dipped from a one-week high, as optimism over a possible easing of China's COVID restrictions set the greenback on course for a monthly loss that will rival its biggest one since 2009.

This was one of the finest performances for the euro, with the currency rising by as much as 0.3% ahead of euro zone inflation figures. There is a possibility that November figures could show the first slowdown since June 2021.

According to official figures, harmonised consumer inflation is expected to have risen by 10.4% in November, down from the final reading of 10.6% for October. However, it's still more than five times the European Central Bank's target rate. Even though the markets would welcome any indication that the worst may be over after almost two years of nearly relentless inflation, there may be some still to come. It was a good day for European assets on Tuesday as inflation in Spain and several large German states cooled off.

Today, the main focus is set to be on the flash CPI report from the EU, which will be very important in determining whether the ECB will increase rates by 50 basis points or 75 basis points during its meeting in just over two weeks.

During the trading session, the U.S. dollar index, which measures the strength of the greenback relative to six major currencies, fell 0.22% to 106.64, moving down from its overnight high of 106.90.

As investors have increased their bets that inflation has peaked and the Fed will soon signal a shift to a softer stance on monetary policy, the greenback has fallen around 4.3% during November, making it its biggest one-month loss since June 2010.

At 18:30 GMT, Powell will deliver a speech to the Brookings Institution in Washington on the economic outlook and the labour market, while the private sector employment data for November are due at 13:15 GMT.

As indicated by the market pools, investors are attaching a probability of 63.5% that the Fed will raise interest rates by just half a point on December 14. In addition, they are attaching an additional 36.5% chance that interest rates will be raised again by 75 basis points.