Sterling was the biggest mover among major currencies, after official data showed British inflation dropped in November and came in well below expectations, causing markets to bring forward bets on when the BoE will cut interest rates
The dollar broadly held its ground against other major currencies on Wednesday, while sterling dropped steeply after British inflation data showed a slowing of the headline rate to its lowest in over two years.
Sterling was the biggest mover among major currencies, after official data showed British inflation dropped in November and came in well below expectations, causing markets to bring forward bets on when the BoE will cut interest rates.
The dollar index, which tracks the U.S. currency against six rivals, was 0.1 per cent higher at 102.26, helped in part by the move lower in sterling, last down 0.5 per cent at $1.26620.
Currency analysts at MUFG said in a note that there was unlikely to be a fresh catalyst for significant dollar moves until the U.S. publishes its own inflation numbers on Friday.
U.S. Fed officials have been pushing back on the idea of rapid rate cuts next year, after last week’s meeting prompted markets to pencil in three cuts in 2024, triggering a rally in financial markets.
The reality for the Fed is that pushing back on the idea of rate cuts will prove difficult if the inflation readings continue to drop faster than expected, the MUFG analysts added.
The dollar shed 0.3 per cent against the yen to 143.415, a day after the BoJ maintained its ultra-loose monetary policy and opted to await more evidence to justify a shift.
The last thing the BOJ wants to do is to have to undo a rate hike again in a couple of months’ time, Rob Carnell, Asia-Pacific head of research at ING, said.
It is not a great environment to be hiking. The BOJ really wants to be sure that the domestic situation is looking OK, Carnell said.
The euro eased 0.2 per cent to $1.09580.
