Investing.com – The US dollar ended lower on Wednesday amid caution ahead of a closely-watched US consumer price report, while sterling weakened after a report of disinflation.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 108.895, going away from the more than two-year high seen at the beginning of the week.
Dollar is going back from highs
The dollar has retreated slightly after a tight reading on the US on Tuesday, which pulled Treasury yields off their record highs, focusing on the release of US consumer inflation later in the year. t-session, which could provide more clarity about the state of inflation.
Economists estimate that the headline rate rose 0.4% month-on-month in December, slightly faster than the 0.3% pace in the previous month. Compared to a year earlier, CPI is seen at 2.9%, up from 2.7% in November.
Stripping out items such as food and fuel, the “core” figure is expected to come in at 0.3% month-on-month and 3.3% year-on-year, matching November.
Going into the report, concerns have swirled around inflation, especially after last week's strong employment data. President-elect Donald Trump's plans to impose stiff tariffs on friends and foes alike have also fueled concerns about price pressures.
“Markets are pricing in US protectionism, but it may not be a big universal tariff delivered in one go.” Even if taxes are gradually raised, markets may not be as optimistic as the Trump team that inflation can be controlled. Today's hot CPI could catch investors on the subject of inflation before tariffs are even considered,” said analysts at ING, in a note.
Sterling sable despite weak CPI print
In Europe, it traded largely unchanged at 1.2221, just above Monday's low, the weakest since November 2023, after data released earlier on Wednesday showed that British inflation late last month.
The annual rate eased to 2.5% in December from 2.6% in November, the Office for National Statistics said.
Investors increased their bets on interest rates being cut in February, placing an 82% chance of a point reduction in the first quarter.
Two rate cuts for 2025 almost fully priced into the market, up from about a 60% chance before the data.
The pound has struggled this year as rising gilt yields, and therefore higher borrowing costs, have fueled fears that the new Labor government may have to cut spending or raise taxes to meet their fiscal regulations, which could put pressure on future growth.
“Normally the pound would have sunk on the back of a soft inflationary curve but it is flat instead.
money market, being more sensitive to long-term borrowing costs than a central bank's short-term view,” ING said.
rose slightly to 1.0312, with French consumer inflation confirmed as subdued in December.
“Yesterday's negative USD events have returned to 1.030 in EUR/USD, but we expect the US CPI to weigh on the pair again. The euro area data calendar does not include market movement announcements, although we will hear from ECB members Lane, Guindos, Villeroy and Vujcic,” ING said.
The single currency has struggled at the start of the year as investors worry about weak economic growth in the region and tariff risks.
The benchmark is expected to cut interest rates by around 100 basis points in 2025, with most of the cuts coming in the first half of the year.
Yen gains on BOJ comments
In Asia, it fell 0.7% to 156.86, with the yen benefiting from comments from Japan's central bank chief.
The Japanese currency strengthened on the back of comments from BOJ Governor Kazuo Ueda, who said the central bank will raise interest rates and adjust the level of monetary support if improvements in the economy and price conditions continue.
His comments come just a day after deputy governor Ryozo Himino said the BOJ would discuss whether to raise interest rates at next week's policy meeting.
traded largely unchanged at 7.3318, hovering around a 16-month high, with the People's Bank of China set to decide on its key benchmark lending rate later this week .
