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Investing.com - The U.S. dollar edged higher Wednesday, helped by a rapid cooling in the gold rally, while cooler-than-expected U.K. inflation weighed on sterling.
At 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 98.795, bouncing after recording hefty losses last week.
Dollar edges higher ahead of CPI release
The U.S. dollar has continued to strengthen this week as concerns about the strength of the regional banking sector appear to have now disappeared, while the very large gold correction on Tuesday added some support.
That said, “a further USD rally from here will be harder to justify unless markets find reasons to price out one of the three Fed cuts expected by March. The most realistic driver of such hawkish repricing this week would be a hot CPI figure on Friday, which we don’t expect,” said ING analyst Francesco Pesole, in a note.
The upcoming September consumer price index release will be the first official economic data point from the government since the beginning of the shutdown in early-October.
It is expected to show the headline annual figure climbing to 3.1%, from 2.9% the prior month, while the annual core CPI release is seen remaining at 3.1%.
Sterling slips on benign inflation release
In Europe, GBP/USD traded 0.4% lower to 1.3323, after data showed the annual rate of Britain’s consumer price inflation held at 3.8% in September, below the 4% widely expected.
“Our call is that this 3.8% marks the peak for headline inflation, and we expect it to be 3.5% for the remaining three months of the year, before falling back from January,” said ING’s Pesole.
“All this should not be enough to bring a November rate cut back on the table, but it definitely increases the chances of a December move. For that, the Autumn Budget will play a pivotal role, where a stricter commitment to fiscal rigour can be the trigger for a ‘Christmas cut’.”
The Bank of England decided to keep interest rates unchanged at 4% at its September meeting, the lowest level for more than two years, with the benchmark Bank Rate having started 2025 at 4.75%.
The Bank’s governor Andrew Bailey said at the time that the U.K. was "not out of the woods yet" when it came to inflation, so any future rate cuts would “need to be made gradually and carefully".
The next interest rate setting decision is on Nov. 6.
EUR/USD traded 0.1% lower to 1.1592, after the White House announced late Tuesday that a planned summit between U.S. President Donald Trump and Russian President Vladimir Putin had been put on hold after Moscow rejected calls for an immediate ceasefire.
“These developments vindicate markets’ extremely cautious treatment of Ukraine truce hopes. We remain of the view that any meaningful market reaction will require tangible progress – rather than mere speculation,” said ING’s Pesole.
Yen recovers slightly
Elsewhere, USD/JPY traded 0.1% lower to 151.83, with the Japanese yen recovering some ground having dropped around 0.8% during the previous session after Sanae Takaichi’s confirmation as Japan’s first female prime minister.
Takaichi is widely viewed as a fiscal dove, and is expected to dole out more government stimulus and spending, as well as oppose any more interest rate hikes by the Bank of Japan.
Speculation over Takaichi’s premiership, after she was elected head of the Liberal Democratic Party in September, had battered the yen over the past month.
USD/CNY gained marginally to 7.1244, as markets awaited more insight into simmering trade tensions between Beijing and Washington, although some comments from U.S. officials spurred hopes that a tariff escalation will not happen.
AUD/USD rose 0.2% to 0.6502.