Peter Nurse

Investing.com – The dollar drifted lower in early European trade Monday, retreating from Friday’s peaks ahead of the release this week of key U.S. inflation data, potentially another test of the Federal Reserve’s thinking over the timing of interest rate hikes.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 94.252, having climbed as high as 94.645 on Friday, it’s highest level for over a year.

The index fell 0.1% to 1.1564, just below the Friday low of 1.1513, but it rose 0.1% last week to 113.56. fell 0.1% to 1.3487, after falling as far as 1.3425 on Friday, a five-week low, in the wake of the Bank of England’s decision to hold rates unchanged.

The drift lower in the dollar in the wake of the Federal Reserve’s insistence that it would be “patient” in deciding when to raise rates even as it began tapering was abruptly reversed Friday following the strong payrolls release. 

The Fed had called for a further recovery in the labor market before it considered lifting its benchmark interest rates, and that’s what they received. The October increase was 531,000 and September data were revised to reflect 312,000 new jobs instead of 194,000.

Six Fed officials are scheduled to speak on Monday. That may help to gauge the level of consensus at the central banking regarding future interest rates. 

This comes ahead of Wednesday’s release of the latest , which are expected to show consumer growth running hot, further testing the resolve of these central bankers.

“Inflation will broaden further and median CPI looks set to reach the highest y/y rate in modern times,” said analysts at Nordea, in a note. According to us, Fed rate rises are within seven- or eight month.

The index fell to 6.3976 elsewhere after China’s slowdown in growth in October, but it beat predictions. This helped to offset weak data that pointed to weakness in domestic demand.

On Monday, the Communist Party will begin a meeting that is likely to prepare for President Xi Jinping’s third term.