NEW YORK: The dollar edged lower on Wednesday ahead of a much-anticipated interest rate decision by the US Federal Reserve later in the day, while sterling slid on increased bets the Bank of England (BoE) will pause its historic run of interest rate hikes.
The US dollar index, which measures the currency against a basket of rivals, was 0.2% lower at 104.86. The index rose for its ninth straight week last week, its longest winning streak in nearly a decade as resilient US growth has fueled a rebound in the dollar, though the rally will likely be tested by Wednesday’s Fed decision and commentary.
“The market, I think, has been surprised by the strength of the US economy,” said Stuart Cole, chief macroeconomist at Equiti Capital in London, said. “You go back to last year, and even earlier this year, and a lot of people had been expecting the Fed to be cutting by now. But it has not happened,” Cole said.
Markets expect the Fed will almost certainly keep rates on hold at 5.25% to 5.50%, putting the focus on the central bank’s forward guidance.
The pound was volatile, last down 0.06% to $1.24 after touching 1.2334, its lowest in almost four months following data showing UK inflation slowed more than expected in August British annual consumer price inflation (CPI) unexpectedly fell to 6.7% in August, official data showed on Wednesday, a day before the BoE is expected to raise rates again.
Attention stayed fixed on the yen as US and Japanese authorities heaped on fresh comments about the possibility of intervention.
The yen was up 0.07% versus the greenback at 147.71 per dollar ahead of the Fed decision.
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