Investing.com – The U.S. dollar rose in European deals on Wednesday ahead of the Federal Reserve’s latest policy decision, while sterling fell following signs of cooling in U.K. inflation and the Japanese yen extended its decline.
At 05:55 ET (0955 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.3% higher at 103.800, near two-week highs.
Fed decision is just around the corner
Fed officials will wrap up their work later in the session and are widely expected to keep interest rates elevated as they continue to fight inflation.
However, traders will be closely scrutinizing the chairman’s comments at the accompanying news conference, as well as the central bank’s new economic forecasts, to see when officials think it is possible to begin cutting interest rates.
Earlier in March, Powell said the Fed was “not far away” from gaining the confidence it needs to bring down inflation to begin cutting rates, but the recent release of robust U.S. inflation data has prompted a shift in expectations about the Fed’s pace and size. rate reduction this year.
Traders estimate a 59% chance the Fed will begin an easing cycle in June, CME’s FedWatch tool showed, significantly lower than previously expected.
Sterling weakens after release of consumer price index
traded 0.2% lower at 1.2696 after UK inflation prices fell more than expected in February, a day before the Bank of England announces its latest monetary policy decision.
rose 3.4% year-on-year in February, slowing from January’s 4.0% rise and below expectations of 3.5%.
This was the lowest inflation rate since September 2021 and raises hopes that inflation, which has persisted for some time, will finally return to the central bank’s 2% target in the coming months.
The Bank of England is expected to keep interest rates unchanged on Thursday, but signs of cooling in inflation could give central bank officials the opportunity to offer a softer outlook for the future.
traded 0.2% lower at 1.0845, with the euro trading near a two-week low amid growing expectations that the euro will soon agree to a series of interest rate cuts starting in early summer.
The ECB president on Wednesday sought to curb those expectations, saying the central bank could not commit to a predetermined number of interest rate cuts even after it starts lowering borrowing costs because it would depend on incoming data.
However, double-digit interest growth in autumn 2022 fell to 2.6% last month, close to the bank’s medium-term target of 2%.
The yen continues to fall
traded 0.6% higher at 151.75, rising to its highest since mid-November even as Japan goes on holiday.
The Japanese yen continued to weaken after the Bank of Japan’s latest policy meeting. The Bank of Japan governor said the central bank would maintain favorable conditions to support the Japanese economy, comments that largely overshadowed the bank’s move away from negative interest rates and yield curve control.
rose to 7.1996, trading very close to the psychologically important level of 7.2. The People’s Bank of China kept its benchmark unchanged as expected earlier on Wednesday.