Investing.com – The U.S. dollar fell to a multi-month low on Wednesday, while the Japanese yen rose sharply and sterling climbed to a one-year high after warmer-than-expected British inflation data.
At 05:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.5% lower at 103.402, falling to its lowest level since mid-March.
Dollar on back foot
The dollar was trading behind on Wednesday as there was confidence that the US Federal Reserve will cut interest rates to boost the slowing economy in September.
The US failed to grow in June, and while this indicated some consumer resilience, it failed to significantly change the market’s view on a rate cut at the next Fed meeting, which is now fully priced in .
“Despite the positive data, real retail sales are still around 4 percentage points below their 2021 peak,” ING analysts said in a note. “Slower consumer spending growth, moderating inflation and rising unemployment rates could impact the sector going forward, and we still expect this to lead to a narrative of lower Fed rates.”
On the economic front, the Fed’s data will be carefully examined for signs of economic weakness, as will expectations and June data.
Pound sterling benefits from British inflation figures
traded down 0.5% at 1.3038, with sterling rising to its highest level since mid-July last year after data on Wednesday showed British inflation rose slightly more than expected.
Inflation remained at 2% year-on-year in June, up from 1.9% forecast, while closely watched services inflation stood at 5.7%.
The next meeting took place in early August, and this data release resulted in traders scaling back their bets on a rate cut at that time, which helped the pound.
rose 0.4% to 1.0938, with the euro benefiting from dollar weakness ahead of Thursday’s policy-setting meeting later.
The ECB is widely expected to maintain its current interest rate after easing it in June, but it will cut its deposit rate twice more this year, in September and December, according to a large majority of economists polled by Reuters, who said the balance of risks trended towards only one additional reduction by the end of the year.
The yen jumps amid intervention speculation
In Asia, the yen fell 1.3% to 156.37, with the yen recovering sharply from near 162 in recent sessions, putting traders on alert for signs of another intervention by Japanese authorities to support the currency.
Bank of Japan data released on Tuesday showed 2.14 trillion yen was issued last Friday. Combined with the estimated amount spent on Thursday, Japan is believed to have bought almost 6 trillion yen through intervention last week.
traded 0.2% lower to 7.2558, with the pair retreating from an eight-month high amid concerns over what exactly a potential Trump presidency could mean for US-China relations.
