Dollar drops ahead of U.S. inflation report, sterling firms

by Jonathan Adams
Dollar wobbles

The dollar was little changed at 104.95 against other major currencies

The dollar dropped slightly on Thursday although moves were largely subdued ahead of a U.S. inflation report due later in the day, while sterling firmed on diminishing expectations for an August rate cut from the BoE.

The British pound advanced to a one-month high of $1.28545 in early Asia trade, extending a 0.48% gain from the earlier session after comments from Bank of England policymakers caused markets to pare back bets for an easing cycle to begin next month.

BoE Chief Economist Huw Pill on Wednesday said price pressures in Britain’s economy were persistent and that the timing of a first rate cut was an “open question”. His colleague Catherine Mann hinted she is unlikely to vote for an interest rate cut in August.

Ahead of Bank of England’s 1 August meeting, the MPC will have only one more set of data, ANZ analysts said in a note.

One set of data is unlikely to be sufficient for the Monetary Policy Committee to be able to gain confidence on the path of inflation, and the MPC may lean in favour of waiting for more data. Our view is as data improves over summer, the MPC will have greater confidence to reduce rates in September, the analysts added.

In the wider market, the dollar was on the back foot, though currencies were mostly trading sideways.

Against the dollar, the euro added 0.04% to $1.0834, and the Aussie dollar gained 0.01% to $0.6754.

The dollar was little changed at 104.95 against other major currencies.

Expectations are for core inflation in the U.S. to have increased 0.2% on a monthly basis in June, putting the annual figure at 3.4%.

The consensus is looking for a benign 0.2% rise in the core CPI. We think that may also be the case, according to Carol Kong, a currency strategist at Commonwealth Bank of Australia.

That outcome will obviously build confidence that the FOMC will be able to reduce rates fairly soon, so I think a 0.2% rise may perhaps push the dollar a bit lower modestly if market pricing for a September cut increases, Kong added.

Markets are now pricing in a more than 70% probability of a rate cut from the Fed in September, compared to a near-even probability a month ago, as per the CME FedWatch tool.

Elsewhere, the New Zealand dollar gained 0.11% to $0.60885, nursing some of its losses from the previous session, when it dropped 0.7% in the wake of the RBNZ’s dovish tilt in its monetary policy statement.

The yen continued to be weighed down by stark interest rate differentials between the U.S. and Japan, and sat at 161.54 per dollar, near a 38-year low.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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