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Investing.com - The U.S. dollar edged higher Wednesday, rebounding to a degree after the previous session’s sharp losses as traders positioned for a December rate cut by the Federal Reserve, while sterling steadied ahead of the U.K. Autumn Budget.
At 03:50 ET (08:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 99.727, having lost 0.5% in the previous session, its biggest daily decline in nearly three weeks.
Increasing expectations of Dec Fed rate cut
The U.S. currency is attempting a comeback Wednesday after weak economic data released during the previous session raised expectations that the Federal Reserve policymakers will agree to another quarter-point rate cut in December.
U.S. retail sales rose less than expected in September while producer prices were in line with expectations. U.S. consumer confidence also sagged in November as households worried about jobs and their financial situation.
These signs of economic deterioration followed dovish comments from a number of Fed policymakers, suggesting that a December rate cut is a live option.
Fed funds futures now imply an 84% probability of a 25-basis-point cut next month, versus around 40% a week earlier.
There are more economic numbers to digest Wednesday, with a special focus on the release of the Fed’s Beige Book.
“It provides anecdotal indications about the state of the economy – effectively replacing the delayed third-quarter GDP report,” said analysts at ING, in a note. “Any mentions of growing job market concerns should smooth the dollar’s convergence to lower short-term rates.”
Sterling awaits Autumn Budget
In Europe, GBP/USD edged 0.1% higher to 1.3184, ahead of a budget announcement by British finance minister Rachel Reeves later in the session.
Reeves is expected to have to raise taxes in order to meet the government’s fiscal targets, but she will be reluctant to dampen the country’s faltering growth.
“The more the Chancellor chooses to push back tough tax and spending decisions until later this decade, the less scope the Bank of England will have to cut rates in the near-term, and the more sceptical investors are likely to be about the U.K.’s commitment to debt sustainability,” said ING.
EUR/USD edged 0.1% higher to 1.1574, helped slightly by signs of progress in a peace plan between Russia and Ukraine.
Ukraine President Volodymyr Zelenskiy said on Tuesday the country was ready to advance a U.S.-backed framework for ending the war with Russia and discuss disputed points with U.S. President Donald Trump.
“Some optimism on a truce is probably smoothing the recovery for the common currency,” added ING. “A breakthrough in the coming days could support the pair to 1.1700.”
BoJ set to hike?
In Asia, USD/JPY gained 0.2% to 156.39, after falling 0.5% overnight in the wake of a Reuters report stating that the Bank of Japan is signaling a potential rate hike as soon as next month.
The report cited renewed concerns over yen weakness and easing political pressure to maintain low rates.
USD/CNY traded 0.1% lower to 7.0801, while AUD/USD gained 0.6% to 0.6502 after data showed consumer inflation remained stubbornly high in October, dampening expectations of further easing by the Reserve Bank of Australia.
NZD/USD soared 1.1% to 0.5679 after the Reserve Bank of New Zealand cut its cash rate by 25 basis points to 2.25%, as forecast, but signalled the easing cycle may now be over.