By Peter Nurse

Investing.com – The dollar edged marginally lower in early European trade Friday, as traders warily awaited the release of key inflation data for clues over future Federal Reserve policy.

At 2 AM ET (0600 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded less than 0.1% lower at 91.763, off last week’s high of 92.408 but substantially above the levels below 90 that it had fallen to in May.

USD/JPY was flat at 110.88, EUR/USD was up 0.1% at 1.1939, while the risk-sensitive AUD/USD was up 0.1% at 0.7591.

The dollar received a jolt higher last week after the Federal Reserve brought forward its median forecasts for interest rates hikes, but subsequent comments from Chairman Jerome Powell over inflation pressures still being temporary in nature have soothed market nerves over the potential for early moves by the central bank to rein in its very accommodative monetary policies.

There appear to be two camps within the Fed, although most of the coalition seem to be sticking to Powell’s script that the surge in consumer prices will fade. For example, New York Fed President John Williams said on Thursday that he sees inflation heading back toward the 2% target next year. Cleveland President Loretta Mester and Boston's Eric Rosengren are slated to round off a full week of public appearances by Fed officials later Friday.

Of more interest may be the release of the core personal consumption expenditures index, at 8:30 AM ET (1230 GMT), into focus. This is seen as the Fed’s favorite gauge of inflation, and is expected to show year-on-year gains of 3.4% in May, climbing from the 3.1% recorded the previous month.

Elsewhere, GBP/USD was marginally higher at 1.3928 after weakening during the previous session as the Bank of England kept its own easy monetary policy unchanged, warning against “premature tightening” despite a marked improvement to its forecasts for the U.K. economy.

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“The Bank of England's latest statement is a little more upbeat than might have been expected, but crucially offers no new clues on rate hike timing,” said analysts at ING. “We're still expecting the first rate rise in early 2023, on the assumption inflationary pressures ease through the middle of 2022.”

The BoE is set to release its Quarterly Bulletin later in the session.

Additionally, USD/MXN rose 0.2% to 19.884, rebounding from Thursday’s two-low low after Mexico’s central bank raised its interest rates for the first time since late 2018 in a surprise move.

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