The dollar index slipped 0.1% to 102.52, after plunging 0.5% on Tuesday when a slower-than-expected increase in producer prices reinforced hopes of a U.S. rate cut next month
The dollar hovered near a one-week low on Wednesday as traders bet U.S. consumer price data later in the day will keep the Fed on course to cut rates next month, while sterling declined after softer-than-expected inflation figures.
New Zealand’s dollar declined more than 1% after the Reserve Bank of New Zealand (RBNZ) lowered the key cash rate and flagged more cuts to come in a sharp dovish shift.
Traders were largely cautious ahead of U.S. inflation data at 1230 GMT, which is expected to show consumer prices rose 0.2% in July, on a month-on-month basis, after a 0.1% drop a month earlier.
The dollar index slipped 0.1% to 102.52, after plunging 0.5% on Tuesday when a slower-than-expected increase in producer prices reinforced hopes of a U.S. rate cut next month.
The dollar’s weakness helped the euro reach a seven-month high of $1.1010, surpassing the high touched during the market turmoil on August 5.
Traders are positioning for a weaker CPI number, which of course poses a risk that if the CPI comes in line or little bit with an upside surprise, the dollar is going to go strong again, according to Volkmar Baur, FX analyst at Commerzbank.
If it surprises on the downside, it should not be swaying the Fed in the direction of a 50bp cut because inflation is a lagging indicator and a somewhat weaker CPI would not be a signal of an impending recession, Baur added.
Traders had been widely expecting a rate cut in September before the producer price data, and ramped up bets for a super-sized 50bp cut after the release to 52.5% from 50% a day earlier, as per CME’s FedWatch Tool.
