Investing.com – The U.S. dollar fell on Wednesday on caution ahead of a closely watched U.S. consumer prices report, while sterling weakened following benign inflation data.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 108.895, off the more than two-year high we tracked. saw at the beginning of this year. the week.
The dollar is retreating from highs
The dollar has retreated slightly after a tame run in the US on Tuesday, sending government bond yields down from their all-time highs, putting the focus on US consumer inflation later in the session, which could provide further clarity on the position of inflation.
Economists estimate headlines rose 0.4% month-over-month in December, slightly faster than the previous month’s 0.3%. Compared to a year earlier, the CPI is 2.9%, up from 2.7% in November.
Excluding things like food and fuel, the so-called ‘core figure’ is expected to be 0.3% monthly and 3.3% annualized, similar to November.
Going into the report, there are concerns about nagging inflation, especially after last week’s groundbreaking employment numbers. President-elect Donald Trump’s plans to impose tough tariffs on both allies and adversaries have also fueled concerns about price pressures.
“Markets are pricing in US protectionism, but probably not a large universal tariff imposed all at once. Even if rates are raised gradually, markets may not be as optimistic as Trump’s team that inflation can be kept under control. A hot CPI today could easily make investors nervous about the inflation topic before rates are even considered,” analysts at ING said in a note.
Sterling sable despite weak CPI print
In Europe, trading was largely unchanged at 1.2221, just above Monday’s low, the weakest level since November 2023, after data released earlier on Wednesday showed British inflation unexpectedly slowed last month.
The annual interest rate fell to 2.5% in December from 2.6% in November, the Office for National Statistics said.
Investors increased their bets on the rate cut in February, bringing the chance of a rate cut in the first quarter to 82%.
Two rate cuts before 2025 were almost fully priced into the market, compared to about a 60% chance before the numbers.
The pound has struggled this year as rising government bond yields, and therefore higher borrowing costs, have raised fears that the new Labor government could be forced to rein in spending or raise taxes to to comply with its fiscal rules, which could potentially put pressure on future growth.
‘The pound would normally have fallen due to soft inflation, but is instead flat. That’s another proof that it is currently behaving like an emerging economy.
market currency, which is more sensitive to long-term borrowing costs than the central bank’s short-term prospects,” ING said.
rose slightly to 1.0312, with French consumer inflation confirmed as moderate in December.
“Yesterday’s USD negative events have led to a return to 1,030 in EUR/USD, but we expect the US CPI to resume pressure on the pair. The Eurozone data calendar does not include any market-moving releases, although we will hear from ECB members Lane, Guindos, Villeroy and Vujcic,” ING said.
The single currency struggled early this year as investors worried about weak economic growth in the region and tariff threats.
Rates are widely expected to fall by around 100 basis points in 2025, with most of the cuts taking place in the first half of the year.
The yen gains on BOJ commentary
In Asia, yields fell 0.7% to 156.86, with the yen benefiting from comments from Japan’s central bank chief.
Japan’s currency strengthened on comments from BOJ Governor Kazuo Ueda, who said the central bank will raise interest rates and adjust the level of monetary support if improvements in the economy and price conditions continue.
His comments come just a day after Deputy Governor Ryozo Himino said the BOJ would debate whether to raise rates at next week’s policy meeting.
was trading largely unchanged at 7.3318 and hovering around a 16-month high, with the People’s Bank of China set to decide on its key lending rate later this week.
