Investing.com – The U.S. dollar was lower in early European trade on Wednesday, falling from recent highs, while sterling rose as U.K. inflation slowed less than expected in March.
At 04:35 ET (0935 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 105.960, just below a five-month peak of 106.51 hit on Tuesday. .
The dollar maintains its underlying strength
The safe-haven dollar soared to a new high on Tuesday after the Fed chief said interest rates were likely to remain high for a long time as progress in reducing inflation was slower than previously expected.
“Right now, given the strength of the labor market and progress in inflation, it is appropriate to give contractionary policies more time to work and let the data and changing outlook guide us,” Powell said at the forum in Washington.
That view contrasts with his comments to a U.S. Senate committee just over five weeks ago that the Fed was “not far away” from gaining the confidence to reduce inflation needed to cut interest rates.
The dollar showed some profit-taking on Wednesday and bond yields fell from recent highs after the two-year Treasury note briefly touched 5.0% for the first time since November.
However, “we will see how long US equities can remain strong in this environment, with the sell-off in equities becoming the final element of a perfect dollar storm,” ING analysts said in a note.
“Risks remain to further dollar gains, with DXY eyeing an October high of 107.00.”
Sterling weakens after payroll data
In Europe, the index rose 0.4% to 1.2470 after official data showed UK inflation slowed less than expected in March, adding to signs the Bank of England’s first interest rate cut could take some time. .
The UK grew by 3.2% in the year, the weakest in two-and-a-half years and down from 3.4% growth in February.
However, the rate was expected to fall to 3.1%, and the release served as a reminder that Britain’s fight against inflation is not yet won.
Bank of England Governor Andrew Bailey said last month there were “further encouraging signs of lower inflation” but he also said the Bank of England needed more confidence that price pressures were under control before cutting inflation.
rose 0.3% to 1.0646, with the euro rebounding from its lowest in five and a half months.
European Central Bank policymakers continue to advocate for interest rate cuts in June as inflation remains on track to fall to 2% by next year.
The yen remains very weak
In Asia, the index fell 0.1% to 154.55, remaining near a recent 34-year high.
Data from Japan showed the economy grew better than expected in March, helped mainly by a weaker yen.
But the yen’s persistent weakness has traders wary of any potential intervention from the Japanese government, especially after several officials warned in recent weeks that they were not ruling out any measures to curb the yen’s weakness.
rose to 7.2370 but was little changed as markets digested Tuesday’s mixed economic data while the People’s Bank kept its midpoint steady.