Dollar wobbles before key US inflation data, sterling strengthens

11 Jul 2024 , 09:35 AM

The dollar dipped slightly on Thursday, but swings were mainly restrained ahead of a US inflation report later in the day, while sterling firmed on falling expectations of a Bank of England rate cut in August.

The British pound surged to a one-month high of $1.28545 in early Asia trade, extending the previous session’s 0.48% advance after comments from BoE policymakers forced markets to reduce bets on an easing cycle starting next month.

Huw Pill, Chief Economist at the Bank of England, said on Wednesday that pricing pressures in the British economy were persistent and that the timing of the first rate decrease was a “open question.” His colleague Catherine Mann indicated that she is unlikely to vote for an interest rate cut in August.

In the broader market, the dollar was down, but currencies were generally trading sideways as investors were wary to take on new positions ahead of the US inflation report.

Against the US dollar, the euro advanced 0.04% to $1.0834, while the Australian dollar rose 0.01% to $0.6754.

The dollar was barely changed, trading at 104.95 against a basket of currencies.

Core inflation in the United States is expected to climb by 0.2% on a monthly basis in June, bringing the annual figure to 3.4%.

According to the CME FedWatch tool, markets now expect the Federal Reserve to lower interest rates in September by more than 70%, up from a near-even likelihood a month ago.

Fed Chair Jerome Powell said on Wednesday that the US central bank will make interest rate decisions “when and as” they are appropriate, rejecting the notion that a September rate decrease may be viewed as a political move ahead of the fall presidential election.

Meanwhile, the New Zealand dollar advanced 0.11% to $0.60885, recouping some of its losses from the previous session, when it sank 0.7% in response to the Reserve Bank of New Zealand’s dovish monetary policy statement.

The yen remained under pressure from sharp interest rate differentials between the United States and Japan, closing at 161.54 per dollar, close to a 38-year low.

Many Japanese private banks that met with the Bank of Japan (BOJ) on Tuesday urged the central bank to cut its monthly bond purchases in half by 2026, according to news reports.

The BOJ is anticipated to set out a strategy for tapering its massive bond purchases at its forthcoming policy meeting on July 30-31, as it works steadily towards policy normalisation.

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