Investing.com – The U.S. dollar fell to multi-month lows on Wednesday, while the Japanese yen rose sharply and sterling climbed to a one-year high after better-than-expected U.K. inflation data.
At 05:40 ET (09:40 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.5% at 103.402, its lowest level since mid-March.
The dollar is in a downward position.
The dollar fell on Wednesday amid confidence that the U.S. Federal Reserve will start cutting interest rates to support the slowing economy in September.
The US failed to grow in June, and while this suggests a degree of consumer resilience, it failed to significantly change market views on a rate cut at the next Fed meeting, which is now all but priced in.
“Despite the positive data, real retail sales are still about 4 percentage points below their 2021 peak,” analysts at ING Bank said in a note. “Slower consumer spending growth, slower inflation and higher unemployment could weigh on the sector going forward, and we continue to expect this to exacerbate the Fed’s low interest rate narrative.”
On the economic front, the Fed will be closely watched for signs of economic weakness, as will the June data.
Sterling gains from UK inflation data
The pound rose to its highest level since mid-July last year after data on Wednesday showed UK inflation rose slightly more than expected.
Annual inflation held steady at 2% in June, versus expectations for a 1.9% increase, while closely watched services inflation was 5.7%.
The committee is due to hold its next meeting in early August, and the release of this data led traders to reduce their bets on a rate cut at that stage, which helped the pound.
The euro rose 0.4% to 1.0938, with the euro benefiting from a weaker dollar, ahead of a policy-setting meeting scheduled for later on Thursday.
The European Central Bank is widely expected to keep interest rates on hold after easing them in June, but will cut its deposit rate twice more this year, in September and December, according to a strong majority of economists polled by Reuters, who said the balance of risks was tilted toward just one more cut by the end of the year.
Yen rises amid intervention speculation
In Asia, the dollar fell 1.3% against the yen to 156.37 yen, with the yen recovering sharply from around 162 yen in recent sessions, putting traders on alert for signs of further intervention by Japanese authorities to support the currency.
Data released by the Bank of Japan on Tuesday suggested that 2.14 trillion yen may have been spent last Friday. Adding that to the estimated amount spent on Thursday, it’s doubtful that Japan bought nearly 6 trillion yen through last week’s intervention.
Sterling fell 0.2% to 7.2558, with the pair retreating from eight-month highs amid concerns about what a potential Trump presidency might mean for US-China relations.