June 12 2024: The U.S. dollar fell on Wednesday, retreating after reaching a four-week high overnight ahead of the Federal Reserve’s latest policy meeting conclusion.
At 04:10 ET (08:10 GMT), the Dollar Index, which measures the greenback against six other currencies, was down 0.4% at 104.775, after peaking at 105.46, its highest level since May 14.
Dollar Awaits Fed Meeting
Despite recent gains, the dollar pulled back, influenced by a stronger-than-expected jobs report last Friday, which led traders to reduce expectations for Fed rate cuts this year.
All attention is now on the release of critical U.S. consumer price data and the Fed meeting, which will include new interest rate forecasts, scheduled for later Wednesday.
The May CPI is anticipated to increase by just 0.1% month-over-month, translating to an annual rise of 3.4%, still significantly above the Fed’s 2% medium-term target.
The Federal Reserve is expected to maintain current interest rates, and traders will be keen to see if officials adjust their expectations for rate cuts this year.
“Market movements could be influenced by two factors: if the Fed removes the phrase ‘In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective’ from its statement, short-dated US yields and the dollar could drop,” said ING analysts in a note.
“Additionally, Chair Powell’s typically dovish press conferences have led to a lower dollar on the day of the last four consecutive FOMC meetings. The same could happen today.”
UK Economy Stagnates in April
GBP/USD increased by 0.1% to 1.2750, with the pound rising despite data showing the UK economy was flat in April, largely due to rainy weather. GDP was unchanged in April after a 0.4% month-on-month rise in March.
These figures followed labor market data on Tuesday that showed falling employment and rising unemployment, but continued strong wage growth.
EUR/USD edged up 0.1% to 1.0745, after data confirmed that German inflation rose in May, driven by higher services prices. Harmonized German consumer prices rose 2.8% year-on-year in May, compared to 2.4% in April.
“We think EUR/USD could find some support from events in the U.S. today. However, 1.0800 will now probably mark strong intraday resistance,” added ING.
Japan PPI Data Offers Little Support to Yen
In Asia, USD/JPY traded 0.1% higher at 157.26, with the yen receiving little support from hotter-than-expected PPI data ahead of a Bank of Japan meeting this week. The BOJ is expected to keep rates unchanged but might tighten policy by reducing bond purchases.
USD/CNY slipped marginally to 7.2538, staying close to six-month highs after mixed Chinese inflation data raised concerns about the country’s economic recovery. While producer prices contracted at their slowest pace in 15 months in May, consumer prices grew less than expected, barely avoiding contraction territory.
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