The dollar was under pressure on Wednesday following disappointing U.S. retail sales data, which bolstered expectations of imminent Federal Reserve rate cuts. Meanwhile, the pound eased slightly ahead of a UK inflation report due later in the day.
Tuesday's data revealed that U.S. retail sales saw a negligible increase in May, with significant downward revisions for April's figures, indicating continued weak economic activity in the second quarter.
This immediately weakened the dollar, although its losses were contained against a basket of currencies, as the euro—carrying the largest weight in the dollar index—remains affected by political uncertainty in France and the broader region.
The euro last traded marginally lower at $1.0738, while the dollar index steadied at 105.28.
"We anticipated weak U.S. retail sales, and that’s what we got," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (OTC
) (CBA). "It appeared the U.S. consumer would never slow down, but that seems to be changing now."
Market predictions now place a 67% likelihood of the Fed cutting rates starting in September, with around 48 basis points worth of cuts expected over the remainder of the year, as per the CME FedWatch tool.
Sterling edged down 0.03% to $1.2705 ahead of the UK inflation report due later on Wednesday. This report precedes the Bank of England's (BoE) policy decision on Thursday, where interest rates are expected to remain unchanged.
"Due to base effects from a year ago and decreases in energy and electricity prices in the UK, the headline inflation rate will likely drop significantly," noted CBA's Capurso. "However, the BoE and the markets are more concerned with services inflation, which is closely tied to wages and a tight labor market."
The Australian dollar performed well against the greenback, supported by a hawkish stance from Reserve Bank of Australia (RBA) Governor Michele Bullock during a press conference on Tuesday following the central bank's rate decision.
The Aussie rose 0.08% to $0.6661, building on a 0.66% gain from the previous session. Conversely, the New Zealand dollar fell 0.08% to $0.6140.
Elsewhere, the yen was relatively unchanged at 157.89 per dollar, pressured by significant interest rate differentials between Japan and the U.S.
Minutes from the Bank of Japan's (BOJ) April policy meeting released on Wednesday showed policymakers discussing the impact of a weak yen on prices. However, this did little to move the market as investors looked ahead to the next BOJ meeting in July.
BOJ Governor Kazuo Ueda indicated on Tuesday that the central bank could raise interest rates next month depending on the economic data at the time.
"The BOJ's outlook for economic growth and inflation suggests that further policy normalization is likely," Wells Fargo economists noted. "However, the slow approach to policy changes since lifting the policy rate in March, and the gradual reduction in bond purchases, suggest that future policy adjustments will be implemented gradually."
Paraphrasing text from "Reuters" all rights reserved by the original author.
