🔥 Premium AI-powered Stock Picks from InvestingPro Now up to 50% OffCLAIM SALE

Dollar strengthens ahead of Fed decision; sterling slips after CPI

Published 20-03-2024, 03:32 pm
© Reuters.

Investing.com - The U.S. dollar rose in European trade Wednesday ahead of the Federal Reserve latest policy decision, while sterling fell after signs of cooling U.K. inflation and the Japanese yen continued to retreat. 

At 05:55 ET (09:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 103.800, sitting near two-week highs.

Fed decision looms

Fed officials conclude their policy-setting meeting later in the session, and are widely expected to keep interest rates at elevated levels as they continue to battle inflation.

However, traders will be studying carefully comments from Chair Jerome Powell at the accompanying press conference as well as the central bank’s new economic projections for clues as to when the officials deem it possible to start cutting interest rates. 

Earlier in March, Powell said the Fed was "not far" from gaining the confidence it needs in falling inflation to start easing rates, but a recent run of resilient U.S. inflation data has prompted a change in expectations for the pace and scale of Federal Reserve rate cuts this year.

Traders are pricing in a 59% chance of the Fed starting its easing cycle in June, the CME FedWatch tool showed, sharply lower than earlier expectations.

Sterling weakens after CPI release

GBP/USD traded 0.2% lower at 1.2696, after U.K. inflation prices fell by more than expected in February, the day before the Bank of England announces its latest monetary policy decision.

Consumer prices rose by 3.4% in annual terms in February, slowing from a 4.0% increase in January, and below the 3.5% expected.

This was the lowest rate of inflation since September 2021, and offers hope that inflation, which has been persistent for some time, will finally fall back to the central bank's 2% target in the coming months.

The BoE is widely expected to keep interest rates unchanged on Thursday, but signs of cooling inflation could provide the central bank officials with room to offer more dovish future guidance.

EUR/USD traded 0.2% lower to 1.0845, with the euro trading near to two-week lows amid growing expectation that the European Central Bank will soon agree to a series of interest rate cuts, starting in early summer.

ECB President Christine Lagarde tried to rein these expectations Wednesday, saying the central bank cannot commit to a pre-set number of interest rate cuts even after it starts reducing borrowing costs as that will depend on incoming data.

That said, eurozone inflation has fallen from a double-digit percentage increase in the autumn of 2022 to 2.6% last month - dropping close to the bank’s 2% medium-term target.

Yen continues to drop

USD/JPY traded 0.6% higher to 151.75, climbing to its highest level since mid-November, even with Japan on holiday.

The Japanese yen continued to weaken in the wake of the Bank of Japan’s latest policy-setting meeting. BOJ Governor Kazuo Ueda said the central bank will maintain accommodative conditions to support the Japanese economy, and these comments largely overshadowed the bank’s move away from negative interest rates and yield curve control.

USD/CNY edged higher to 7.1996, trading very close to the psychologically important 7.2 level. The People’s Bank of China kept its benchmark loan prime rate unchanged as expected earlier Wednesday.


Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.