Dollar little changed awaiting G20 trade news

LONDON (Reuters) - The dollar treaded water on Friday ahead of a meeting between the United States and China at the Group of 20 summit in Japan, shaking off light pressure from U.S. economic data that did nothing to derail speculation about a July interest rate cut.

The core U.S. personal consumption expenditure price index rose 0.2% in May, as expected, reinforcing investor expectations that the Federal Reserve will cut rates by at least 25 basis points at the next meeting.

As result, the dollar reaction to the data was limited and the euro was trading late in the day at $1.1372 EUR=, 0.04% firmer against the greenback on the day.

“In the big themes today, the data doesn’t change the July cut,” said Kenneth Broux, head of corporate research at Societe Generale.

The euro was on track for its biggest monthly gain since February 2018 on the back of broad-based dollar weakness, although it was off 0.9% for the first half of the year.

It remains unclear whether U.S. President Donald Trump and Chinese President Xi Jinping will agree on a truce when they meet at the G20, or escalate their trade conflict further, leaving investors unsure about how to trade the dollar.

Still, markets are hoping that a meeting between the leaders of the two largest economies will bring progress on trade, despite fraught negotiations.

“I’m personally quite pessimistic on any deal being made,” said Jordan Rochester, G10 forex strategist at Nomura.

However, any falls in the dollar are unlikely to become sustained and so “the euro at $1.14 is a sell,” Rochester said.

While inflation expectations in the United States and Europe have declined in recent weeks, as measured by forward-starting swaps, U.S. gauges have stabilized after the Fed opened the door to rate cuts last week.