Dollar steady ahead of Fed minutes, sterling gains on CPI release

Dollar steady ahead of Fed minutes, sterling gains on CPI release

At 04:55 ET (08:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally higher at 104.600.

The dollar is struggling to move in any meaningful fashion as traders await the release of the minutes from the last Fed meeting, searching for more cues on the likely path of U.S. interest rates towards the end of the year.

Last week’s soft-than-expected consumer inflation data raised hopes of rate cuts in a reasonably short time, but a series of Fed officials have continued to call for policy caution.

Fed Governor Christopher Waller on Tuesday said recent economic data indicates the Fed’s restrictive policy is working as directed, while Atlanta Fed Chair Raphael Bostic said the central bank needs to exercise caution ahead of its first rate cut to lead to pent-up spending and send inflation “bouncing around.”

“We should get a bit more clarity on the FOMC thinking in the May meeting minutes,” said analysts at ING, in a note. “While there should be evidence of increasing concern around the disinflation hiccups, Powell’s messaging seemed to denote a broad optimism on future price developments.”

In Europe, GBP/USD rose 0.2% to 1.2733, after U.K. inflation fell by less than expected in April, making a cut by the Bank of England next month less likely.

Consumer prices rose by an annual 2.3%, down sharply from a 3.2% increase in March and its lowest since July 2021 when it stood at 2.0%, the Office for National Statistics said. But still above the 2.1% forecast.

“While this doesn’t significantly alter the BoE’s trajectory, it may prompt them to delay rate cuts for another month. Our base case remains a first rate cut in August,” said ING.

EUR/USD traded 0.1% lower to 1.0849, as traders position for the European Central Bank to start its rate-cutting cycle next month.

“European Central Bank President Christine Lagarde sounded cautiously dovish in line with most comments from her Governing Council members in a speech yesterday,” said ING, adding that markets are pricing in 24bp of easing for next month.

“We still think EUR/USD can ease back to 1.08 in the near term, but our 3Q forecast remains for 1.10 as the Fed transitions to easing and the ECB broadly matches the market’s rate cut expectations,” ING added.

In Asia, NZD/USD soared 0.5% to 0.6118, with the New Zealand dollar rising sharply after the RBNZ kept its official cash rate steady as widely expected, but also flagged delays in any potential interest rate cuts due to sticky inflation.

USD/JPY fell 0.2% to 156.43, after soft trade Japanese data–which showed disappointing exports and imports for April, as well as a bigger-than-expected trade deficit–weighed on the yen. 

USD/CNY traded marginally higher at 7.2394, remained in sight of a six-month high, as traders awaited more cues on Beijing’s stimulus measures and the Chinese economy.

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