Investing.com – The U.S. dollar rose modestly on Thursday but held near seven-month lows after the release of soft inflation data, while sterling gained on the release of solid economic growth data.

At 05:45 ET (09:45 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.1% at 102.452, slightly above levels last seen in January.

Dollar in retreat ahead of retail sales

The U.S. dollar has been on the defensive for much of this week, with data released on Wednesday showing it rose moderately in July, in line with expectations, and annual inflation growth slowed below 3% for the first time since early 2021.

The data follows lower-than-expected results earlier in the week and suggests inflation is on a downward trend, which would give the Federal Reserve room to cut interest rates.

The next meeting will be in September, where interest rates are expected to be cut, although there is still some discussion about the size of the initial cut.

The next data point will be US retail sales later in the session. This will attract a lot of attention because consumption accounts for about two-thirds of US economic growth.

The release is expected to show a monthly escalate of 0.4%, which would be a slight improvement from the previous month’s stable reading.

The Federal Reserve has kept its benchmark overnight rate in its current range of 5.25% to 5.50% since last July, after raising the benchmark rate by 525 basis points starting in 2022.

Pound higher after UK economic growth data

In Europe, it rose 0.2% to 1.2845 after data showed the UK index rose 0.6% in the second quarter of 2024, building on a rapid 0.7% recovery in the first quarter of the year.

The UK economy has grown slowly since the COVID-19 pandemic, growing by just 2.3% between Q4 2019 and Q2 2024.

In early August, interest rates were cut for the first time in more than four years. However, doubts remain as to whether the central bank will agree to further rate cuts this year.

fell slightly to 1.1011 but remained close to the previous session’s high of 1.1047, its highest level this year.

The interest rate cuts began in June, and many expect policymakers to agree to another cut as early as September.

Yen stable after GDP release

In Asia, the yen rose 0.1% to 147.43, with the yen stabilising after data showed Japan’s economy grew more than expected in the second quarter, helped by a rebound in private consumption on rising wages in Japan.

The reading is in line with the Bank of Japan’s forecast that rising wages will boost the Japanese economy, giving the central bank more room to raise interest rates this year.

rose 0.3% to 7.1587, while the yuan weakened and a series of readings painted a mixed picture for China’s economy.

China’s economy grew more than expected, raising some confidence that consumer spending and inflation will improve.

But they rose less than expected, as did fixed asset investment. China also unexpectedly rose to 4.2%.

The readings showed that while some of Beijing’s policy measures supported consumer spending, the overall economy remained under pressure.