Investing.com – The US dollar rose on Wednesday ahead of an expected consumer inflation report for November, hitting the euro and sterling as the Chinese yuan retreated on reports that Beijing is considering allowing the currency to weaken.
At 05:15 ET (10:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.3% higher at 106.410.
US CPI in spotlight
The dollar saw demand on Wednesday ahead of an expected reading of US inflation that could signal the pace of Federal Reserve interest rate cuts.
The report is expected to show that they increased to 2.7% in November, above the 2.6% in the previous month, a monthly increase of 0.3%. The , which excludes volatile food and energy components, is expected to come in at 3.3%, unchanged from October, also up 0.3% monthly.
“While it's tempting to say the Fed has moved on from the inflation story, an upside surprise is likely to add to the high consensus expectation for core inflation at 0.3% a month from now month the dollar higher,” said analysts at ING. , in a note.
“This is because the market is now pricing in an 88% chance of a 25bp Fed rate cut next Wednesday and a high core CPI reading could make it more of a 50:50 proposition.”
This has cut interest rates by 75 basis points since September and markets are currently expecting another 25-bps cut at the December 17-18 meeting.
Euro weakens ahead of ECB
In Europe, it slipped 0.2% to 1.0501, ahead of Thursday's policy setting meeting with the European Central Bank, its last policy meeting of the year.
They are widely expected to agree to another 25-bps rate cut, the fourth such cut this year.
“It was a very quiet week on the European data calendar as investors waited for the main event of the week – tomorrow's ECB decision,” ING said.
“Market prices have settled on a 25bp ECB rate cut – such a cut appears to be a done deal for the market,” ING said, but “the press conference could open the debate for more cuts later, implying a dovish outcome for EUR.”
traded 0.3% lower to 1.2731, and rose 0.1% to 0.8841, with markets expecting another rate cut on Thursday from , possibly as much as 50 basis points.
China considers weaker yuan
In Asia, it rose 0.4% to 7.2809, after Reuters reported that China is considering allowing the yuan to weaken in 2025 to achieve higher trade targets in Donald Trump's second presidency.
Traders are also looking for headlines from the closed-door China Central Economic Forum, which runs this week.
China has pledged to implement more proactive fiscal stimulus measures and adopt looser central monetary policies in 2025.
it gained 0.5% to 152.70, after data showed Japan's wholesale inflation increased for a third straight month in November, as businesses faced higher labor and raw material costs.
Markets are divided on whether the BOJ will raise interest rates again, ahead of its two-day policy meeting that ended on December 19. has slowed down a bit in recent months.
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