Dollar Index Slips from 13-Month High Ahead of Data Flurry

Major currencies reflected the dollar's consolidation. Sterling edged up to $1.2650 after falling to a five-month low earlier in the week. The euro held near $1.0850, recovering from a two-year low against the dollar. The yen stayed past 159 per dollar, holding near levels that have drawn warnings from Japanese officials about excessive moves. The 160 line is seen as the next trigger for intervention, traders said. Commodity currencies were mixed. The Australian dollar steadied near $0.6650 after a two-month low. The New Zealand dollar held above $0.6100. Both remain under pressure from a strong dollar and lower commodity prices. The Aussie also faces headwinds from China's slowdown, with iron ore extending losses.

The data run peaks Friday with the core PCE print. Economists surveyed by Bloomberg expect a 2.6% year-over-year reading, matching the prior month's pace. A number in line would likely keep the dollar bid, traders said. A downside surprise could revive bets on a September rate cut. The GDP revision due Friday, some traders said, could shift the narrative if it shows the economy cooling faster than the initial estimate suggested.

The next major test after the data prints will be the July payrolls report, which will either confirm or challenge the narrative of a still-tight labor market. Traders said the dollar's direction in the coming weeks hinges on whether the data supports the current policy stance or forces a change in expectations.