On Wednesday, the dollar strengthened relative to other major currencies. At the same time, sterling plummeted following the release of British inflation data that indicated the headline rate had slowed to its lowest point in over two years.
The official statistics revealed that British inflation decreased in November and came in considerably below forecasts, which caused markets to move forward with bets on when the Bank of England will lower interest rates. Sterling was the most fantastic mover among the major currencies.
The decline in the value of sterling, which was last down 0.6% at $1.26570, contributed somewhat to the recent 0.3% increase in the dollar index, which compares the value of the U.S. dollar to six other currencies.
According to a report from MUFG’s currency experts, major dollar movements are unlikely to occur until the U.S. releases its inflation figures on Friday.
Following a meeting last week that caused markets to pencil in three rate cuts in 2024 and ignite a surge in financial markets, U.S. Federal Reserve policymakers have begun retreating from making swift rate reductions next year.
“The reality for the Fed is that pushing back on the idea of rate cuts will prove difficult if the inflation readings continue to fall faster than expected,” according to analysts at MUFG.
The euro dropped to $1.09405, down 0.4%. Policymaker for the European Central Bank, Joachim Nagel, stated in an interview on Wednesday that interest rates in the eurozone must stay high and that investors placing bets on future reductions in borrowing costs should exercise caution.
The Bank of Japan kept its ultra-loose monetary policy one day earlier and decided to hold off on making any changes until further data was available, which caused the dollar to drop 0.3% versus the yen to 143.410.
“Reversing a rate hike in a few months is the last thing [the BOJ] wants to do,” ING’s Asia-Pacific director of research, Rob Carnell, stated.
According to a Reuters story on Wednesday, Japan’s government plans to cut its budget for the first time in twelve years in the upcoming fiscal year. Bitcoin increased in value by 1.3% to $42,802 among cryptocurrencies.
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