Investing.com – The US dollar strengthened on Wednesday after overnight losses, while sterling rose slightly after UK inflation returned to the Bank of England’s target for the first time in almost three years.
At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the dollar against a basket of six other currencies, was trading slightly higher at 104.885, after falling to 104.762 in the previous session.
The dollar is stabilizing
The U.S. currency stabilized on Wednesday after weakness in the previous session as it rose slightly last month, pointing to persistent factors dragging consumer spending momentum despite inflation pressures showing signs of cooling.
“The reading is consistent with our view that consumer spending has peaked in the U.S. and is expected to result in a broader weakening in growth momentum in the second half of the year,” ING analysts said in a note.
It kept its benchmark interest rate in a range of 5.25%-5.50% last week, but the Fed also released updated economic projections that showed its officials reduced their expectations for rate cuts this year to one of three from March .
However, according to CME’s FedWatch tool, markets are currently pricing in a 67% chance that the Fed will begin easing interest rates in September, with cuts of nearly 50 basis points expected by the end of the year.
Trading ranges are likely to be constrained on Wednesday as US investors observe the June 11 holiday.
Pound sterling strengthens after inflation data
rose 0.2% to 1.2728 after data showed UK inflation returned to the Bank of England’s 2% target in May for the first time in almost three years.
The decline in April’s annual reading of 2.3% was in line with expectations and marked a keen decline from the 41-year high of 11.1% reached in October 2022.
The last political meeting will be held on Thursday.
“The bank will not reduce interest rates at tomorrow’s meeting. But we have another report in July and unless it is a significant surprise, we suspect this will still leave the BoE on track to cut rates in August,” ING added.
fell 0.1% to 1.0735 as the euro continues to be weighed down by political unrest in France and across the bloc.
“EUR/USD continues to stabilize but still appears to lack sufficient strength to rebound significantly given the continued political risks and fiscal concerns weighing on the single currency,” ING said.
The Australian benefits from the RBA’s hawkish stance
In Asia, shares fell 0.1% to 157.77, with the Bank of Japan’s April policy minutes showing policymakers debated the impact a delicate yen might have on prices.
That said, the release didn’t make much of an impression on the market as investors looked ahead to the next BOJ meeting in July.
the rate rose 0.1% to 7.2569, while rising 0.3% to 0.6672 after Governor Michele Bullock’s hawkish stance at a press conference following the central bank’s interest rate decision.
