SINGAPORE – The dollar sank to a two-month low against its major peers on Wednesday in the run-up to a key US inflation reading on the rate hike.
US inflation data will be released later on Wednesday, with core consumer prices expected to rise 5 percent annually in June. The numbers should also provide more clarity on the Federal Reserve’s progress in its fight against inflation.
Before the release, the US dollar fell to a two-month low of 101.45 against a basket of currencies, extending its losses from the start of the week after Fed officials said the central bank was nearing the end. of its current monetary policy tightening cycle. .
The euro was up 0.07 percent at $1.1018, near Tuesday’s two-month high of $1.1027.
“We are already seeing markets move in anticipation of a softer US inflation report,” said Matt Simpson, a senior market analyst at City Index. “That risks a ‘buy the rumour, sell the fact’ reaction if the numbers come close to expectations.”
Elsewhere, sterling hit a 15-month high of $1.2940 in early Asian trade, buoyed by bets that the Bank of England will have to further tighten monetary policy to rein in British inflation, which it is at the highest rate of any major economy.
Data released on Tuesday showed a key measure of British wages rose at the fastest pace on record as core earnings in the three months to May rose 7.3 percent, above expectations for a rise in the 7.1 percent.
“The (BoE) will have its head in its hands after the latest jobs and wages figures as it will likely force them to raise another 50 basis points (bps) at their next meeting and have a terminal rate above 6 percent.” said Simpson. saying.
The current market price indicates approximately another 140bp of rate hikes from the BoE.
The Japanese yen strengthened past the 140-per-dollar level on Wednesday to hit a one-month high of 139.54 per dollar, drawing some support from expectations that the Bank of Japan (BOJ) could modify its controversial rate policy. Yield Curve Control (YCC) at their next meeting this month.
“Although stable policy appears to be the most likely outcome for the July policy meeting, it is widely expected to bring improved inflation forecasts and the market will continue to wait for the BOJ to offer some signal as to when the YCC might tighten,” it said. . Jane Foley, Head of FX Strategy at Rabobank.
“Speculation of a possible tightening could allow the (yen) some support before the BOJ meeting this month.”
In other currencies, the New Zealand dollar rose 0.34 percent to $0.6219 ahead of a Reserve Bank of New Zealand (RBNZ) monetary policy decision later on Wednesday, though the central bank is expected to hold rates unchanged.
“While we continue to see the balance of risks tilt towards the RBNZ eventually having to do more, that is not expected to happen today,” said Susan Kilsby, agricultural economist at ANZ.
The Aussie gained 0.39 percent to $0.6713.
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