The Dollar Holds Steady While Sterling Slides on Inflation Surprise
By Iain Withers
The dollar maintained its position against other major currencies on Wednesday, while sterling experienced a sharp decline following the release of British inflation data, which showed a slowing of the headline rate to its lowest in more than two years.
Sterling was the most significant mover among major currencies, with official data indicating a fall in British inflation in November, well below expectations. This caused markets to bring forward bets on when the Bank of England will cut interest rates.
The dollar index, which tracks the U.S. currency against six peers, was up 0.1% at 102.26, partly due to the fall in sterling, which was down 0.5% at $1.26620.
Currency analysts at MUFG noted that there is unlikely to be a fresh catalyst for significant dollar movements until the U.S. publishes its own inflation data on Friday.
U.S. Federal Reserve officials have been pushing back on the idea of rapid rate cuts next year, following last week’s meeting, which prompted markets to pencil in three cuts in 2024, sparking 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 fall faster than expected,” the MUFG analysts said.
The dollar fell 0.3% against the yen to 143.415, a day after the Bank of Japan 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,” said Rob Carnell, Asia-Pacific head of research at ING.
“It’s not a great environment to be hiking. The BOJ really wants to be sure that the domestic situation is looking OK,” he added.
The euro eased 0.2% to $1.09580.
In cryptocurrencies, bitcoin gained 1.3% to $42,821.
