Investing.com – The U.S. dollar rebounded from recent highs on Tuesday as moderate regional inflation data hit the euro ahead of this week’s policy meeting of the European Central Bank.

At 04:20 ET (08:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading broadly unchanged at 102.915, level with the two-month high seen in the previous session.

The index continued to rise 2.3% over the past month and is on track to end a three-month losing streak.

The dollar is rebounding from the highs

The U.S. currency has been in high demand in recent weeks as employment and inflation readings raised hopes of a slower pace of Fed rate cuts after the central bank cut interest rates by a massive 50 basis points in September and announced the start of a monetary easing cycle.

The Fed governor reiterated that point on Monday, calling for “greater caution” in future interest rate cuts. Waller said the central bank should only gradually cut interest rates in the coming months.

The U.S. economic calendar is relatively peaceful on Tuesday, but you can hear from more Fed speakers, including members of the FOMC and .

As CME Fedwatch showed, investors estimated an 86.8% chance of a 25 basis point cut in November and a 13.2% chance that rates would remain unchanged.

The euro is falling ahead of the ECB meeting

In Europe, shares fell 0.2% to 1.0892 after the release of more regional inflation data that pointed to further government rate cuts from Thursday.

In France, it fell more than initially expected in September, with the main harmonized annual index of consumer prices revised down to 1.4%, the lowest level since the beginning of 2021, according to data published on Tuesday.

Spain also fell well below the ECB’s 2.0% target, while it fell 1.6% in September compared with the same month last year, suggesting that underlying price pressures in the euro zone’s largest economy are minimal.

The ECB has already reduced interest rates twice this year, and the reduction in the deposit rate to 3.5% this week is almost fully priced in by financial markets.

“The euro is losing some value ahead of Thursday’s meeting of the European Central Bank and has now clearly broken below 1.090,” ING analysts said in a note. “The renewed widening of FX differentials against the USD is clearly causing a shift in EUR/USD strategic positioning, with CFTC data showing that net long positions have declined from 13.5% to 5.9% of open interest since early September.”

rose 0.1% to 1.3070, after a surprise decline to 4% in August from 4.1%, suggesting underlying strength in the labor market.

However, the decline in average earnings data has opened the door to a further cut in interest rates when the next one takes place in November, provided Wednesday’s data is not a significant upside surprise.

Yuan under pressure

rose 0.4% to 7.1156, with the yuan under pressure amid uncertainty over China’s plans to provide fiscal stimulus and the Ministry of Finance failing to provide key details on planned measures, particularly their scale and timing.

A number of delicate macroeconomic readings also worsened the sentiment towards China. Monday’s data showed China’s trade balance contracted more than expected in September as export growth slowed sharply, while earlier readings showed the disinflationary trend continuing.

fell 0.4% to 149.11, with the yen rebounding slightly after the pair threatened to break the 150 resistance level