Investing.com – The US dollar fell in early European trading on Thursday ahead of a key inflation report later in the session, while strong growth data boosted sterling.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 104.552, falling to its lowest level since mid-June.
Dollar slides ahead of CPI release
The dollar fell slowly on Thursday, extending overnight losses after the Federal Reserve chairman reiterated his prospects for a soft landing for the US economy.
Powell also said on Wednesday during the second day of his semi-annual testimony in Congress that the Fed did not need to see inflation fall below its 2% target to start cutting rates, but only that the bank needed sufficient confidence that inflation was declining.
This puts full focus on June, later in the session, with any signs of easing inflation likely to lead to increased expectations for a rate cut.
The tool showed traders maintain a 72.5% chance that the Fed will cut rates by 25 basis points in September.
“We have a slight preference for a weaker dollar today given the recent dovish trend in the market, despite inconclusive evidence for a September rate cut,” ING analysts said in a note.
“We suspect such bias is partly a result of Fed Chairman Jerome Powell’s cautious deviation from the latest FOMC dot plot projections, which include only one rate cut in 2024.”
Pound sterling shows strength after UK growth data
traded 0.3% higher at 1.2877, climbing to the highest level since early March after data showed the UK economy grew faster than expected in May.
Britain rose 0.4% month on month in May, after no growth during a wet April.
The strength of the rebound could see interest rates start cutting as early as August 1, the next scheduled date for monetary policy announcements.
The timing of a rate cut was an “open question”, chief economist said on Wednesday, raising the likelihood that a rate cut would fall below 50% on futures markets, compared with just above 50% on Wednesday.
“Following the latest aggressive comments from the BoE, it will take some convincing developments in UK prices to convince markets that an August rate cut is possible,” ING added. “That remains our base case anyway, so we think GBP strength will be short-lived.”
rose 0.2% to 1.0850 and traded near a one-month high as traders await more news on French politics.
“The euro is enjoying some ‘silence’ on French politics, leaving investors feeling comfortable so far with the EUR/USD drifting slightly higher from the 1.0800-1.0830 anchor,” ING said.
“When you read the French news you get anything but a sense of silence, but global markets inherently filter out noise to prioritize important developments, and so far there have been no coalition talks.”
The Yen makes a small gain
In Asia, trading was 0.1% lower at 161.51, with the yen gaining only slightly from dollar weakness.
Weak core machine order data for May indicated continued weakness in the Japanese economy, reinforcing the idea that the Bank of Japan will have limited room to raise rates further.
traded 0.1% lower at 7.2674, with the Chinese currency seeing some relief after disappointing inflation data on Wednesday.
