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HomeCurrenciesDollar Holds Steady Post Robust CPI; GBP Awaits Data Deluge
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Dollar Holds Steady Post Robust CPI; GBP Awaits Data Deluge

On Wednesday, the U.S. dollar maintained its stability, retaining the majority of its overnight gains following robust consumer inflation data. This reinforced expectations of prolonged higher interest rates. Simultaneously, the British pound hovered in a holding pattern ahead of crucial GDP data.

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The strength of the dollar led to most other G7 currencies trading within narrow ranges. The euro, Australian dollar, and Canadian dollar experienced minimal movements, all shifting less than 0.1% in either direction. In contrast, the Japanese yen displayed some resilience amid ongoing speculation regarding a policy shift by the Bank of Japan.

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GBP Rangebound Amid Data Onslaught

The British pound held its ground on Wednesday at approximately 1.2792 against the dollar, anticipating several key economic indicators. Gross domestic product (GDP) data, industrial production figures, and trade data for January are all scheduled for release later in the session, providing valuable insights into the British economy as it grapples with sluggish growth.

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Of particular interest is the GDP data, following a slightly smaller-than-expected contraction in December. Analysts are anticipating a month-on-month expansion of 0.2% in January. Meanwhile, in the Eurozone, attention turned to Germany’s wholesale price index inflation, with the euro showing little movement but remaining within sight of two-month highs.

Dollar Steady as CPI Surpasses Expectations, Eyes on Economic Indicators

The dollar index and dollar index futures experienced a slight dip but retained the majority of their overnight gains after a stronger-than-expected reading on consumer price index (CPI) inflation. The robust CPI data suggested inflation was stickier than anticipated, raising concerns about the Federal Reserve’s motivation to trim interest rates.

Nevertheless, markets maintained their predictions that the Fed might initiate rate cuts by June, with a 25 basis point reduction still on the horizon, according to the CME Fedwatch tool. The heightened CPI reading potentially sets the stage for a stronger reading on producer price index inflation later in the week. Additionally, U.S. retail sales data for February is due on Thursday.

Japanese Yen Strengthens Amid Bank of Japan Rate Hike Speculation

The Japanese yen rose by 0.3% on Wednesday, fueled by signs of impending wage hikes in Japan, increasing expectations for an imminent interest rate hike by the Bank of Japan. Media reports revealed that Toyota Motor Corp, one of Japan’s largest employers, had agreed to substantial wage hikes with a labor union, with other employers likely to follow suit.

The combination of increased wages and recent persistent inflation indicators provides the Bank of Japan with more impetus to end its negative interest rates and yield curve control policy. Reuters reported that the Bank of Japan is gearing up to signal how it will conduct bond purchases after concluding its ultra-dovish policies. The Bank of Japan is scheduled to meet next week, with expectations for a potential interest rate hike either then or during a late-April meeting. Higher rates are seen as beneficial for the yen, which faced challenges amid rising U.S. rates over the past two years.

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