The US dollar experienced a decline, reaching its lowest point in two months, as investors awaited crucial US inflation data. In contrast, the British pound reached its highest level in 15 months due to positive wage growth data, which fuelled expectations that the Bank of England (BoE) would continue to raise interest rates. The market was particularly focused on the forthcoming US inflation data. Forecasts predicted a 5% annual increase in core consumer prices for June, which could provide insights into the potential extent of further interest rate hikes by the Federal Reserve.
Prior to the data release, the US dollar weakened against a basket of currencies, particularly against the Japanese yen, which strengthened significantly, surpassing 140 yen per dollar for the first time in a month. According to Jordan Rochester, a currency strategist at Nomura, the crucial factor in the consumer price report would likely be the monthly change in the core inflation rate, excluding food and energy prices. Some market participants are anticipating a mere 0.2% increase in the core rate for June, considering various indicators, including the decline in used-car prices. Economists surveyed by Reuters, on the other hand, expect a 0.3% increase. He emphasized that such a result would significantly impact the market since other charts indicate a substantial deceleration in inflationary pressures in the US. Against the Japanese yen, the US dollar experienced a decline of up to 0.76%, reaching a one-month low of 139.32.
Furthermore, the euro saw a 0.2% increase, reaching $1.1027, edging towards its highest point in two months. The Swiss franc also rose by 0.3% to reach a 2.5-year high of 0.8765. Matt Simpson, senior market analyst at City Index, noted that markets were already responding in anticipation of a softer US inflation report. He stated, "That runs the risk of a 'buy the rumour, sell the fact' reaction if the figures come in around expectations."
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