Investing.com – The US dollar steadied on Wednesday after overnight losses, while the British pound rose after UK inflation returned to the Bank of England's target for the first time in nearly three years.
At 04:25 EDT (08:25 GMT), the dollar index, which tracks the US currency against a basket of six other currencies, was trading slightly higher at 104.885, after falling to a low of 104.762 in the previous session.
The dollar stabilizes
The US currency steadied on Wednesday after the previous session's weakness as it barely rose in the past month, indicating continued headwinds to the momentum of consumer spending activity despite inflationary pressures showing signs of slowing.
“The reading is consistent with our view that consumer spending has peaked in the US and should lead to a broader decline in growth momentum in the second half of the year,” analysts at ING said in a note.
The Fed kept its benchmark interest rate in a range of 5.25%-5.50% last week, but the central bank also issued updated economic forecasts that showed its officials had trimmed their expectations for interest rate cuts this year, to one of the three seen in March. .
However, markets now expect a 67% chance that the Fed will start easing interest rates in September, according to the CME FedWatch tool, with roughly 50 basis points of cuts scheduled for the rest of the year.
Trading ranges are likely to be limited on Wednesday, as US investors celebrate the Juneteenth holiday.
Sterling rises after inflation data
It rose 0.2% to 1.2728, after data showed that UK inflation returned to the Bank of England's 2% target in May for the first time in nearly three years.
The annual decline from April's reading of 2.3% was in line with expectations, and represented a sharp decline from the 41-year high of 11.1% reached in October 2022.
The European Central Bank holds its final policy meeting on Thursday.
“The bank will not cut interest rates when it meets tomorrow. But we still have another report in July, and unless this is a material surprise, we doubt it will keep the Bank of England on track for a cut in August,” ING added.
It fell 0.1% to 1.0735, with the euro continuing to be affected by political tensions in France and the broader bloc.
“EUR/USD has continued to stabilize but still appears to lack sufficient strength to rebound meaningfully given continued political risks and financial concerns weighing on the single currency,” ING said.
The Australian dollar gains due to the Reserve Bank of Australia's hawkish stance
In Asia, trading fell 0.1% to 157.77, as the Bank of Japan's April policy minutes showed policymakers discussed the impact a weak yen could have on prices.
However, this release did little to move the market as investors look ahead to the Bank of Japan's next meeting in July.
It traded 0.1% higher at 7.2569, while rising 0.3% to 0.6672 following a hawkish stance from Governor Michael Bullock in a press conference following the central bank's interest rate decision.