The U.S. dollar slipped lower in early European trade Thursday, with traders digesting a series of comments from Federal Reserve policymakers ahead of next week’s crucial inflation data release.

At 03:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 103.140, retreating from the one-month high of 103.96 it reached on Tuesday.

The index slipped back a little earlier in the week after Fed chair Jerome Powell reaffirmed that a process of disinflation was underway, declining to push back strongly against easing rate expectations after the surprisingly strong U.S. jobs report.

That said, a number of his colleagues were keen to point out on Wednesday that more interest rate hikes were needed to fully gain control of inflation.

Fed Governor Christopher Waller stated that “we have farther to go” to fight inflation, while New York Fed President John Williams said the U.S. central bank still probably needs to raise its key interest rate above 5%.

The Fed raised the target range for fed funds by 25 basis points last week to 4.50-4.75%.


United States Federal Reserve Chair Powell Speaks

“We think markets may feel relatively comfortable with the current pricing for a 5.15% peak rate for now, even though risks are skewed towards another 10bp of tightening being added into the curve,” analysts at ING said, in a note. “This means that the dollar’s upward correction may have a bit more to run, but we doubt this will morph into a sustained USD uptrend from this point on.”

This puts next week’s U.S. CPI release for January firmly in the spotlight, as traders look for additional clues on the policy outlook.

Elsewhere, EUR/USD traded 0.3% higher at 1.0741, finding support from the likelihood of further interest rate hikes by the European Central Bank after German inflation remained elevated.

Germany’s harmonized CPI fell to 9.2% from 9.6% in January

Slowing to the lowest level in five months, thanks to further government aid to ease the pain from soaring energy costs.

That said, core inflation remains stubbornly high, which could prompt the Eurozone’s central bank to continue hiking interest rates into May, ECB policymaker Klaas Knot said on Wednesday.

GBP/USD rose 0.3% to 1.2104, USD/JPY fell 0.3% to 131.01, while the risk-sensitive AUD/USD rose 0.7% to 0.6974.

USD/SEK fell 0.3% to 10.5560 ahead of the latest policy-setting meeting of Sweden’s Riksbank.

A hike of 50 basis points to 3.0% is widely expected, but both the governor and deputy are new to the roles, so a degree of uncertainty remains over the path they will choose.