Investing.com – The U.S. dollar was steady on Wednesday, after weakening overnight ahead of the July CPI release, while the British pound weakened after benign inflation data.
At 05:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down at 102.277, after falling 0.5% overnight.
Dollar falls ahead of CPI release
The US currency fell on Tuesday after the July reading came in lower than expected, prompting traders to shift their bets slightly towards a 50 basis point cut in September.
The PPI reading boosted hopes that the inflation reading, due later Wednesday, is also expected to show that inflation remained benign in July, giving the Federal Reserve more room to start cutting interest rates.
“We have been bearish on the dollar recently and generally bullish on the stabilization of sentiment, and in our view a benign US CPI reading could pave the way for more risk/bearish USD trading ahead of core PCE data on August 30 and jobs numbers on September 6,” ING analysts said in a note.
At the end of July, the central bank kept its benchmark interest rate in the same range of 5.25%-5.50% that it has held for more than a year, but indicated that a rate cut could come in September if inflation continues to slow.
Sterling falls after UK inflation data
In Europe, the pound fell 0.2% to 1.2837 after data showed that UK interest rates rose by less than expected in July, boosting the chances of another rate cut by the Bank of England.
Annual consumer price inflation rose to 2.2% after two months at the Bank of England’s 2% target, but this was below expectations of 2.3%.
The Bank of England cut interest rates from a 16-year high of 5.25% earlier this month, and financial markets now price in a 44% chance of a quarter-point rate cut in September, up from 36% before the data was released.
The euro rose 0.3% to 1.1019, rising to levels not seen this year after the yield on French 12-month EU-coordinated bonds rose to 2.7% in July, from 2.5% in the period to June.
The central bank began cutting interest rates in June, and many expect policymakers to agree to another cut in September, although rising inflation would make that less likely.
“We see the EUR/USD rally to the upper half of the 1.09-1.10 range as the start of a longer-term uptrend. We target a move to 1.12 in the near term on the back of narrowing spreads and stabilizing risk sentiment,” ING said.
New Zealand dollar falls after interest rate cut
In Asia, the Australian dollar fell 1% to 0.6014 after the Reserve Bank of Australia cut interest rates by 25 basis points, with Reserve Bank of Australia Governor Adrian Orr saying the bank was also considering a 50 basis point cut.
The Reserve Bank of New Zealand pointed to progress in inflation towards its annual target of 1% to 3%, and also pointed to market expectations that interest rates will be cut by 100 basis points by mid-2025.
The Japanese yen rose 0.2 percent to 147.15, steadying after strong gains overnight, although further strength in the yen was limited by improved risk appetite.
Japan’s second-quarter data is due out on Thursday, and is likely to influence the Bank of Japan’s plans to cut interest rates.
The US dollar index fell 0.1% to 7.1470, with data due later this week.