Dollar steady, sterling gains after UK inflation data

Investing.com - The U.S. dollar steadied Wednesday after overnight losses, while sterling edged higher after the U.K. inflation returned to the Bank of England’s target for the first time in nearly three years.

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally higher at 104.885, having fallen as low as 104.762 the previous session.

Dollar stabilizes

The U.S. currency stabilized Wednesday after the previous session’s weakness as retail sales barely rose last month, pointing to lingering headwinds to momentum in consumer spending activity despite inflationary pressures showing signs of cooling.

“The reading is in line with our view that consumer spending has peaked in the US and should drive a broader softening in growth momentum into the second half of the year,” said analysts at ING, in a note.

The Federal Reserve kept its benchmark interest rate in the 5.25%-5.50% range last week, but the central bank Fed also released updated economic projections that showed its officials had pared back their expectations for rate cuts this year, to one from the three seen in March.

However, markets are now pricing in a 67% chance the Fed will begin easing rates in September, according to the CME FedWatch tool, with nearly 50 basis points worth of cuts priced in for the rest of the year.

Trading ranges are likely to be limited Wednesday, with U.S. investors celebrating the Juneteenth holiday.

Sterling edges higher after inflation data

GBP/USD rose 0.2% to 1.2728, after data showed U.K. inflation returned to the Bank of England's 2% target in May for the first time in nearly three years.

The drop in annual consumer price inflation from April's 2.3% reading was in line with expectations, and marked a sharp decline from the 41-year high of 11.1% reached in October 2022.

The Bank of England holds its latest policy meeting on Thursday.

“The Bank won't be cutting rates when it meets tomorrow. But we still have another report in July, and unless that's a material surprise, we suspect it will still leave the BoE on track for a cut in August,” ING added.

EUR/USD fell 0.1% to 1.0735, with the euro continuing to be weighed down by political jitters in France and the wider bloc.

“EUR/USD has continued to stabilise but still seems to be lacking enough steam to meaningfully rebound given lingering political risk and fiscal concerns weighing on the common currency,” ING said.

Aussie gains on hawkish RBA stance  

In Asia, USD/JPY traded 0.1% lower to 157.77, with minutes of the Bank of Japan's April policy meeting showing policymakers debated the impact a weak yen could have on prices.

That said, the release did little to move the market as investors looked ahead to the next BOJ meeting in July.

USD/CNY traded 0.1% higher at 7.2569, while AUD/USD rose 0.3% to 0.6672 after a hawkish stance from Reserve Bank of Australia Governor Michele Bullock in a press conference following the central bank's rate decision.