The US dollar has strengthened to a fresh three-month high against major currencies before trading steady, boosted by investors who revised their expectations for an interest rate cut by the Federal Reserve after higher-than-expected US inflation data.
Since Tuesday's inflation data showed a 3.1% increase in the annual US consumer price index (CPI) for January, with expectations for just a 2.9% increase. Money market players have adjusted strategies against expectations of a Fed rate cut in March and a 53% chance of a cut in June, according to CME.
The US dollar index, which measures the US dollar against six major currencies, rose 0.05% to 104.91, before slipping 0.10% to trade at 104.747.
Charu Chanana, Chief FX Strategist stated, “January's high US CPI has closed the door for a Fed rate cut in March. While the PCE data is more important, the focus has shifted to May or June for the start of the Fed's easing cycle.” These changes have strengthened the strengthening of the US dollar, especially with the prospect of rate cuts by the Swiss National Bank (SNB) and the European Central Bank (ECB) before the Fed.
Against the British pound, the US dollar strengthened 0.35% to $1.25556 after UK inflation remained unchanged at 4.0% in January, defying expectations of a rise to 4.2%. Money markets now predict a 51% chance of a BoE rate cut in June and 75% in August.
However, the US dollar weakened against the yen after Japanese authorities warned against the yen's rapid and speculative movements. Japan's Finance Minister, Shunichi Suzuki, stated that rapid movement was undesirable for the economy, hinting at possible intervention.
Meanwhile, the euro remained little changed, trading at $1.0711, after eurozone economic data showed modest growth in jobs and economic activity.
