The US dollar continued its losing streak on Tuesday, marking the third consecutive day of declines. This weakening of the greenback is a direct reflection of the broader risk-on sentiment that has gripped financial markets. As investors digested recent economic data and eagerly awaited the crucial US inflation report, the dollar found itself under pressure.

Dollar Retreats Amidst Risk-On Rally

The dollar index, a key barometer of the greenback’s strength, breached the critical 103.00 support level, signaling a clear bearish trend. Lower Treasury yields, indicative of a potential slowdown in interest rate hikes, further exacerbated the dollar’s woes.

Euro and Pound Gain Ground

The euro was a clear beneficiary of the improved market mood, climbing to multi-day highs against the dollar. While investors await the final estimate of Q2 GDP for the eurozone, all eyes are on the upcoming inflation data for crucial economic insights.

The British pound also joined the rally, pushing past the 1.2800 level. Sterling traders are now focused on the UK’s inflation report, due out on Wednesday, which will provide valuable clues about the Bank of England’s monetary policy path.

Yen and Commodities Show Mixed Signals

The Japanese yen, known for its volatility, struggled to break decisively above the 148.00 resistance against the dollar. As investors await key economic data, including Q2 GDP growth and industrial production, the yen’s direction remains uncertain.

In the commodities market, oil prices encountered resistance at the $80.00 per barrel level, ultimately retreating below $79.00. Gold, after a brief rally towards $2,480 per ounce, experienced profit-taking as investors adopted a cautious stance ahead of the US inflation data. Silver followed a similar pattern, despite a brief surge above the $28.00 mark.

All Eyes on US Inflation

Wednesday’s release of the US Consumer Price Index (CPI) will undoubtedly be the dominant market driver. This report will provide crucial insights into the pace of inflation, which will significantly influence expectations for future Federal Reserve monetary policy decisions. Any unexpected figures in the CPI data are likely to trigger substantial market volatility.

Adding to the mix, the UK’s CPI report, also scheduled for Wednesday, will attract investor attention as it could impact the Bank of England’s policy stance. With such high-stakes economic data on the horizon, market participants are bracing for a potentially volatile trading session.

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