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Dollar Edges Up After Steepest Decline in a Year, Pound Falls on UK Inflation Figures

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The dollar saw a slight recovery on Wednesday following its significant drop the previous day, while the pound experienced a decline after slower UK inflation figures were released. The dollar’s drop on Tuesday was prompted by data showing that US consumer prices remained unchanged in October, with underlying inflation experiencing its smallest rise in two years. This has led investors to believe that the Federal Reserve may not raise rates again in the near future. Similarly, in the UK, inflation eased to its slowest pace in two years in October, prompting a reassessment of the outlook for Bank of England policy and resulting in a decline in the pound.

The chances of another rate hike at the Federal Reserve’s December policy meeting have been all but wiped out by investors, while bets of a rate cut in May next year have increased to around 50%, according to the CME Group’s FedWatch Tool. CMC Markets chief market strategist, Michael Hewson, stated, “For me what this does concern, is we’re done, when it comes to rate hikes and it’s a question of when do rate cuts come and that’s what markets are starting to price, particularly if you look at the bond market.”

The dollar index, which measures the performance of the US currency against six others, rose 0.16% to 104.26, not far from Tuesday’s two-month low of 103.98. The pound, on the other hand, fell 0.3% to $1.2464 after reaching a two-month high the day before. The euro also experienced a decline of 0.3% to $1.0848 after reaching its highest level since August.

Meanwhile, the dollar/yen pair rose 0.1% to 150.52 after data revealed that Japan’s economy contracted in the July-September period, making it more difficult for the central bank to ease out of its ultra-easy monetary policy. Despite this, currency strategist Moh Siong Sim at the Bank of Singapore believes that softer US yields and the possibility of intervention by the Japanese government will limit the yen’s further weakening.

In China, the offshore yuan briefly reached a three-month high of $7.2385 against the dollar after domestic industrial output and retail sales growth exceeded expectations. However, the rally was dampened by evidence of ongoing weakness in China’s property sector, with data showing a further decline in sales and investment in real estate. The offshore yuan ended the day at 7.2577 per dollar, a decrease of 0.1%.

Overall, the dollar’s recovery comes after its significant drop on Tuesday due to cooler US inflation data, while the pound fell following slower UK inflation figures. The outlook for future rate hikes has been largely revised, with investors now betting on the possibility of a rate cut next year. The currency markets remain uncertain, with various factors such as economic data and central bank policies influencing the fluctuations in different currencies.

More detail via Yahoo Sports here… ( Image via Yahoo Sports )

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