The dollar has fallen so far in April, after surging in the first three months of 2021 on expectations that a combination of monetary stimulus and government spending would cause inflation to spike.
U.S. CPI data for March is due at 1330 GMT and is expected to show a rise in inflation to 2.4%.
Market participants will also be paying attention to how yields react to a 30-year Treasury auction.
ING strategists wrote in a note to clients that higher inflation would support higher U.S. yields, which could in turn cause the dollar to outperform lower-yielding currencies such as the yen, Swiss franc and euro.
The inflation data “should further fuel the narrative that the U.S. economy is starting to overheat and are to likely add to concerns that the Fed’s firmly dovish message will be increasingly challenged,” ING said.
At 0725 GMT, the dollar was up 0.1% against a basket of currencies, at 92.201, moving away from recent three-week lows.
The 10-year U.S. Treasury yield was at 1.6979% for its third consecutive day of gains, but still well below the 1.7760% level hit on March 30, which was the highest in over a year.
“There’s a widespread expectation that inflation is set to rise in the coming months, but also a consensus for the most part that this will be a transitory phenomenon,” Deutsche Bank (DE:DBKGn) strategist Jim Reid wrote in a note.
Overnight data showed China’s exports rose in March, with import growth rising to four-year highs, signalling an improvement in global demand.
Asian stock markets were broadly positive after the data, but the boost did little to support currency markets. By early London trading, China’s offshore yuan was down 0.1% against the dollar, changing hands at 6.5523.
The euro was down 0.1%, at $1.1895. Germany’s ZEW survey of investors’ economic sentiment for April is due at 1000 GMT.
The Australian dollar, which is seen as a liquid proxy for risk appetite, was down 0.2% versus the U.S. dollar at 0.7609.
On Monday, Australia abandoned its goal to vaccinate nearly all its population by the end of 2021.
The New Zealand dollar also fell, down 0.1%. The Reserve Bank of New Zealand is due to meet on Wednesday and is expected to keep rates constant.
The British pound was up 0.1% against the dollar at $1.3763. The UK economy grew in February as companies prepared for the lifting of the third coronavirus lockdown, gross domestic product data showed.
Elsewhere, bitcoin was up 1.6% at $60,807.77, ahead of Coinbase Global Inc, the largest U.S. cryptocurrency exchange, listing on the Nasdaq on Wednesday.
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