NEW YORK: The dollar lost ground against its major counterparts on Thursday after data showed a lower-than-expected rise in US inflation, while sterling turned higher as a deeply divided Bank of England cut rates. The US Consumer Price Index rose 2.7 percent year-on-year in November,
according to Labor Department data, compared with a 3.1 percent increase forecast by economists polled by Reuters.
The dollar weakened 0.12 percent to 155.48 against the Japanese yen and was down 0.16 percent to 0.794 against the Swiss franc.
“The margin of error shouldn’t be this great and it is questionable whether what we got in this release is going to make its way into the more traditional data collection discussion,” said Marvin Loh, senior global market strategist at State Street in Boston.
“One of the things that ends up being a challenge in terms of changing expectations significantly is that we’re already pricing in a Fed that gets to neutral within the next 12 months. So you either need to aggressively push against the neutral and/or start believing that there’s a recession that will make you go below neutral and I don’t think we’re anywhere near there,” Loh said.
The longest federal government shutdown in US history had impacted data collection for the inflation report. The Federal Reserve tracks the Personal Consumption Expenditures Price Index for its 2 percent inflation target.
President Donald Trump said on Wednesday the next Fed chair will be someone who believes in lower interest rates “by a lot”. All of the known candidates - White House economic adviser Kevin Hassett, former Fed Governor Kevin Warsh and current Fed Governor Chris Waller - advocate for interest rates to be lower than they are now. The euro was flat in choppy trading after the European Central Bank kept its policy rates steady and took a more positive view on a euro zone economy that has shown resilience to global trade shocks.
The euro was last down 0.01 percent at USD1.173925 against the dollar.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was down 0.04 percent to 98.329.
Sterling rose after the BoE delivered its fourth rate cut this year, although markets pushed back their expectations for further easing, with the next cut not fully priced until June, from April prior to the decision.
Sterling strengthened 0.29 percent to USD1.3414. “Interest rate markets have reduced their bets on further easing, likely on account of both the finely balanced nature of upcoming decisions and the Governor’s comment that room for further reductions is becoming more limited. Two-year sterling swap rates are roughly five basis points higher,” said Tom Priscott, FX trader at Investec.
“The pound may have further room for upside as traders recalibrate their outlooks for 2026 through the afternoon,” Priscott said.
The Swedish and Norwegian central banks both kept their main interest rates on hold, in line with expectations.