The dollar index, down 1 per cent for the year so far, was steady at 102.37 in early Asia trade on Thursday

The dollar found a footing on Thursday as a sudden end to a strong rally for U.S. stocks had investors looking for safety and as a surprise drop in British inflation hit the pound.

Sterling suffered its sharpest decline in two months overnight after British inflation dropped below forecasts to an annual 3.9 per cent in October, its lowest for two years. Traders scrambled to price rate cuts by May and the currency shed 0.7 per cent to $1.2638.

The data indicates that inflation momentum in the UK is finally losing steam, allowing the BoE to join the global rate cutting cycle next year, said analyst Marios Hadjikyriacos of brokerage XM.

Elsewhere, heavy selling in the late hour of equities trade on Wall Street sent a ripple of risk-aversion through markets, lifting what had been an under-pressure greenback from lows.

The Australian and New Zealand dollars pulled back from five-month highs. The Aussie was last at $0.6714, having hit its highest since July at $0.6779 a day earlier. The kiwi traded at $0.6257.

The euro was stable at $1.0943.

The yen found support at 143.5 per dollar, after having lost ground on Tuesday when the BoJ left its ultra-easy policy settings unchanged.

The next focus of currency markets is Friday’s release of the U.S. core PCE index which is forecast by analysts to increase 0.2 per cent in November with the annual inflation rate slowing to its lowest since 2021 at 3.3 per cent.

Analysts suspect the balance of risk is on the downside and the slowdown in inflation means the Federal Reserve will have to ease policy just to stop real rates from increasing. But with 150 bps of cuts already priced in next year, a massive rally in the bond market and the dollar index down more than 4 per cent from an early November high, some signs of caution are creeping in.

Some adjustments in positions and paring back of risks ahead of this event is only sensible, said OCBC currency strategist Christopher Wong in Singapore. Liquidity is getting thinner as we get closer to the festive season, thin liquidity can exacerbate price movements on any data surprises.

The dollar index, 1 per cent lower for the year so far, was steady at 102.37 in early Asia trade on Thursday.

China’s yuan slid on the rising dollar in overnight offshore trade, and as traders see no let up in China’s accommodative monetary stance. It was stable at 7.1480 to the dollar on Thursday.