Investing.com – The U.S. dollar edged higher on Wednesday, trading near a two-month high on expectations of modest Federal Reserve rate cuts this year, while sterling fell after favorable inflation data.
At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 103.180, holding close to Monday’s two-month peak.
The dollar was helped by lower expectations for interest rate cuts
Recent data pointing to a resilient economy, coupled with slightly higher-than-expected inflation in September, has led market participants to lower their bets on an aggressive US rate cut.
Adding to these expectations were comments Tuesday from the president of the Atlanta Federal Reserve, who said he planned just one more rate cut of 25 basis points this year when he updated his projections for last month’s meeting of U.S. central banks.
Most market participants see two more cuts this year, totaling 50 basis points, and traders are currently 92% betting on a 25 basis point cut when the Fed decides next policy on November 7, with an 8% chance of unchanged. to the FedWatch Tool from CME Group (NASDAQ:).
The pound sterling falls after the publication of inflation
In Europe, inflation fell 0.5% to 1.3003 after data showed British inflation fell more than expected in September, paving the way for a rate cut next month.
In Britain it fell to 1.7% on an annual basis, below the forecast 1.9% and the 2.2% recorded a month earlier.
This was the first time it had fallen below the Bank of England’s target of 2% since April 2021, and came on top of data seen earlier this week showing UK wages growing at the slowest pace in more than two years.
“The figures are undeniably dovish for the Bank of England, paving the way for rate cuts at the two remaining meetings this year (November and December),” ING analysts said in a note.
“Given comments from Governor Andrew Bailey earlier this month suggesting the BoE could increase the pace of easing, markets may be tempted to price in the likelihood of a 50 basis point rate cut in November. ”
was trading 0.1% lower at 1.0882, ahead of Thursday’s policy-setting meeting by the European Central Bank.
Interest rates have already been cut twice this year and a 3.5% cut in deposit rates this week has been almost fully priced in by the financial markets.
“EUR/USD is mainly determined by external factors. The substantial decline in oil prices has reduced the scope for further decline based on market factors, but we remain suspicious that pre-US election positioning should favor a weaker EUR/USD,” ING said.
Yuan handles weekly losses
fell slightly to 7.1179, with the yuan suffering losses this week as sentiment soured on the country’s plans for more stimulus.
China’s Finance Ministry said it will take a raft of fiscal measures to boost growth, but did not specify the timing or scale of the planned measures, raising uncertainty about their effectiveness.
rose 0.2% to 149.43, with the pair climbing closer to the 150 resistance level.
Figures due later this week are expected to provide more clues to the Bank of Japan’s plans to raise rates further.
