Currency Shifts as Traders Eye Inflation Data and Rate Cuts

The dollar hovered near a one-week low as traders anticipated U.S. consumer price data, predicting a Federal Reserve rate cut. Sterling dipped following softer-than-expected inflation numbers. New Zealand's dollar dropped after the Reserve Bank of New Zealand reduced the cash rate, hinting more cuts to come.

The dollar neared a one-week low on Wednesday as traders anticipated U.S. consumer price data, expected to confirm the Federal Reserve's rate cut next month. Meanwhile, sterling eased after UK inflation numbers fell short of expectations, and New Zealand's dollar tumbled over 1% as the Reserve Bank cut rates and hinted at more reductions.

Traders were cautious ahead of the U.S. inflation data release, expected to reveal a 0.2% rise in July consumer prices. The dollar index dipped to 102.52, following a 0.5% slump on Tuesday. This dip provided an unexpected boost to the euro, which hit a seven-month high. "Traders are positioning for a weaker CPI," said Volkmar Baur, FX analyst at Commerzbank.

Sterling fell 0.2% after British consumer price inflation saw a modest rise, less than anticipated. Financial markets are now pricing in a 44% chance of a BoE rate cut. The kiwi dropped sharply after New Zealand's central bank executed a dovish rate cut, contrasting its earlier expectations. Meanwhile, Japanese PM Fumio Kishida's decision not to seek reelection had minimal market impact, with the yen weakening slightly against the dollar.

(With inputs from agencies.)