Greenback edges up; sterling slides on inflation surprise

THE US dollar edged up against other major currencies on Wednesday (Dec 20), while sterling fell sharply after British inflation data showed a slowing of the headline rate to its lowest in more than two years.

Sterling was the biggest mover among major currencies, after official data showed British inflation fell in November and came in well below expectations.

This caused markets to bring forward bets on when the Bank of England will cut interest rates.

The US dollar index – which tracks the greenback against six peers – was last up 0.3 per cent at 102.38. This was helped in part by the move lower in sterling, which was last down 0.6 per cent at US$1.2657.

Currency analysts at MUFG said in a note that there was unlikely to be a fresh catalyst for significant US dollar moves until the US publishes its own inflation data on Friday.

Federal Reserve officials have been pushing back on the idea of rapid rate cuts next year, after last week’s meeting prompted markets to pencil in three cuts in 2024, sparking a rally in financial markets.

“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,” the MUFG analysts said.

The euro eased 0.4 per cent to US$1.09405.

European Central Bank policymaker Joachim Nagel said in an interview published on Wednesday that eurozone interest rates must remain high.

He added that traders betting on upcoming cuts in borrowing costs should be cautious. “To all those speculating on an imminent rate cut, I say: ‘Careful, others have miscalculated before’.”

The US dollar fell 0.3 per cent against the yen to 143.41. This came a day after the Bank of Japan (BOJ) maintained its ultra-loose monetary policy and opted to wait for more evidence to justify a shift.

“The last thing (the BOJ) wants to do is to have to undo (a rate hike) again in a couple of months’ time,” said Rob Carnell, Asia-Pacific head of research at ING.

Japan’s government is aiming to reduce its budget next fiscal year for the first time in 12 years, Reuters reported on Wednesday.

In cryptocurrencies, Bitcoin gained 1.3 per cent to US$42,802.