Dollar bulls are betting U.S. data this week will show consumer prices picked up last month, bringing inflation closer to the Federal Reserve's 2 percent threshold it has set for considering a rate hike, CNBC's latest market survey of currency traders, analysts and strategists showed.
The U.S. dollar index (DXY) - which measures the dollar against six major currencies - recovered from a 20-month low of 78.906 set last Thursday after European Central Bank (ECB) chief Mario Draghi warned that the euro's strength was "a serious concern" and that the ECB was "comfortable" with taking more action to support economic growth and raise inflation at its June meeting. The euro has a near 58 percent weighting in the DXY.
The strength of this week's scheduled U.S. data releases - which include the closely-watched April consumer price index (CPI) on Thursday - and the bearing it has on Fed rate expectations will decide whether the dollar continues its turnaround, strategists said.
"U.S. economic data started to improve relative to expectations in the beginning of April and I am expecting more of the same to scatter doubts about the continuity of the Fed's tapering effort and feed speculation about eventual interest rate hikes," said Ilya Spivak, Global Macro strategist for DailyFX.com, who holds a 'bullish' view on the dollar this week. "An expected nine-month high of 2 percent on headline year-on-year CPI this week ought to reinforce this dynamic."
In addition, preliminary University of Michigan consumer confidence for May on Friday "will be important to watch as well, with upside surprises likely to drive USD higher," Spivak told CNBC in emailed comments.