The U.S. dollar hit a 2-1/2-month low early in the New York session, then stabilized around those levels on Tuesday afternoon, the eve of U.S. consumer price data, as investors bet that rising inflation could erode the currency’s value.
In recent years, rising inflation expectations have helped the dollar because investors assumed the Federal Reserve would hike interest rates in response to higher prices. That is no longer the case.
A disappointing employment report last week triggered a widespread selloff in the greenback. And though surging commodity prices have raised concerns of higher inflation, markets believe the Fed will keep its commitment to low rates and hefty asset purchases.
“People are fearful that the Fed means what they say. And what they’re saying is – we’re not going to raise rates, but also we’re going to let…