TOKYO- The dollar hovered near a three-week low to the euro and a one-month low versus sterling on Wednesday, after unexpectedly soft US inflation data cemented the view that the Federal Reserve will skip an interest rate hike later in the day.
China’s yuan, however, sagged to a 6-1/2-month trough, a day after the central bank cut rates, amid speculation even more stimulus is on the way to support the sputtering post-COVID economic recovery
The dollar index which measures the currency against six major peers, including the euro and sterling – was flat at 103.30 in Asian trading, after dipping to the lowest since May 22 overnight at 103.04.
The US consumer price index (CPI) edged up just 0.1 percent last month, and notched its smallest year-on-year increase since March 2021 at 4.0 percent.
That saw bets for a quarter-point hike to US rates later on Wednesday pared to less than 6 percent currently, from 21 percent 24 hours earlier, according to the CME Group’s FedWatch Tool.
“The soft inflation report effectively cements a Fed pause, although I doubt it will be enough to warrant a dovish undertone as it’s not in their interest with CPI twice the Fed’s target,” said Matt Simpson, senior market analyst at City Index, who points to 103 as a key support level for the dollar index.
“Whilst it was enough to send EUR/USD above 1.0800, it wasn’t enough to keep it there given a hawkish pause seems quite likely.”
The euro was little changed at 1.07885, after reaching a high of $1.08235 on Tuesday. The European Central Bank decides policy on Thursday, with a quarter-point rate hike widely expected.
Sterling was largely flat at $1.2607, after soaring 0.8 percent in the prior session and hitting the highest since May 11 at $1.2625.
