Dollar weakens ahead of CPI release; sterling stable
The US dollar edged lower Wednesday amid caution ahead of a closely watched US consumer prices report, while sterling weakened after a benign inflation release.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 108.895, edging away from the more than two-year high seen at the beginning of the week.
Dollar retreats from highs
The dollar has retreated slightly following a tame reading on US producer prices on Tuesday, which pulled Treasury yields off their highs, putting the focus on the release of US consumer inflation later in the session, which could provide further clarity around the state of inflation.
Economists estimate that the headline consumer price index increased by 0.4% month-on-month in December, slightly faster than a pace of 0.3% in the prior month. Compared to a year earlier, CPI is seen at 2.9%, up from 2.7% in November.
Stripping out items like food and fuel, the so-called “core” figure is projected to come in at 0.3% on a monthly basis and 3.3% year-on-year, matching November.
Heading into the report, concerns have swirled around nagging inflation, particularly after last week’s blockbuster employment data. President-elect Donald Trump’s plans to impose strict tariffs on allies and adversaries alike have also fueled the worries around price pressures.
“Markets are pricing in US protectionism, but probably not a big universal tariff delivered in one go. Even if tariffs are hiked gradually, markets may not be as optimistic as Trump’s team that inflation can be controlled. A hot CPI today could easily get investors jittery on the inflation topic before tariffs are even considered,” analysts at ING said, in a note.
In Europe, GBP/USD traded largely unchanged at 1.2221, just above Monday’s low, the weakest level since November 2023, after data released earlier Wednesday showed that British inflation slowed unexpectedly last month.
The annual rate of inflation edged down to 2.5% in December from 2.6% in November, the Office for National Statistics said.
Investors increased their bets on the Bank of England cutting interest rates in February, putting an 82% chance of a first quarter-point reduction.
Two rate cuts for 2025 were almost fully priced into the market, up from around a 60% chance before the data.
The pound has struggled this year as surging gilt yields, and thus higher borrowing costs, have prompted fears that the new Labour government may be forced to rein in spending or raise taxes to meet its fiscal rules, potentially weighing on future growth.
EUR/USD rose slightly to 1.0312, with French consumer inflation confirmed as subdued in December.
In Asia, USD/JPY dropped 0.7% to 156.86, with the yen benefiting from remarks by Japan's central bank chief.
Source: Investing.com
