The U.S. dollar was flat on Wednesday, after weakening overnight, ahead of the July CPI, while the pound weakened after benign inflation data.
At 13:30 Riyadh time, the dollar index, which measures the greenback against a basket of six other currencies, fell to 102.290, after falling 0.09% overnight.
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Dollar Falls Ahead of CPI
The greenback fell on Tuesday after the July PPI reading came in weaker than expected, sending traders’ bets slightly shifting towards a 50 basis point cut in September.
The PPI reading boosted hopes that the CPI inflation reading, which is expected later on Wednesday, will show that inflation remained moderate in July, giving the Federal Reserve more space to start cutting interest rates.
“We have been pessimistic about the dollar lately and generally optimistic about the stability of sentiment, and from our perspective, the benign US CPI reading may pave the way for more risk in trading on the dollar in the core personal consumption expenditure statement on August 30 and jobs figures on September 6,” analysts at ING said in a note.
It has kept {{ecl-168|||||The Fed} at the end of July on the interest rate in the same range of 5.25%-5.50% that it was more than a year ago, but indicated that the rate cut could come as soon as September if inflation continues to ease.
Pound falls after inflation statement in United Kingdom
In Europe, the GBP/USD forex pair traded 0.2% at 1.2837 after data showed British consumer price inflation rose less than expected in July, boosting the chances of another wave of interest rate cuts by the Bank of England.
The annual rate of consumer price inflation rose to 2.2% two months after the Bank of England’s target of 2%, but that was lower than the forecast of 2.3%.
The Bank of England cut interest rates from a 16-year high of 5.25% at the beginning of this month, and financial markets now estimate a 44% chance of cutting the Bank of England’s rate by a quarter of a percentage point in September, up from 36% before the data was released.
{{1{EUR/USD}} rose 0.3% to 1.1019, rising to levels not seen this year after 12-month coordinated French EU inflation rose to 2.7% in July from 2.5% in the period to June.
The ECB began cutting interest rates in June, and many expect policymakers to agree to another cut in September, although higher inflation will make this unlikely.
“We see the rise of the EURUSD currency pair to the upper half of the range of 1.09-1.10 as the beginning of a long-term upward trend,” INGN analysts said. “We are targeting a near-term move to 1.12 on the back of a narrowing of interest rate differentials and stabilization of risk sentiment.”
New Zealand dollar falls after interest rate cut
In Asia, the NZD/USD currency pair fell 1% to 0.6014 after RBNZ cut interest rates by 25 basis points, with Governor Adrian Orr stating that the bank had also considered a 50 basis point cut.
The Reserve Bank of New Zealand also noted progress in bringing inflation to its annual target of 1% to 3% per annum, and also noted market expectations that interest rates will fall by 100 basis points by mid-2025.
{{3|3|USDJPY}} rose 0.2% to 147.15, holding steady after a strong overnight rally
Second-quarter GDP data from Japan is due on Thursday and is likely to be a factor in the Japan bank’s plans to cut interest rates.
{{2{2111|USD/JPY}} fell 0.1% to 7.1470, with industrial production and retail sales data coming out later this week.
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