The U.S. dollar inched higher on Wednesday, supported by a sharp pullback in gold prices, while a softer-than-expected U.K. inflation print weighed on the pound.
At 04:20 ET (08:20 GMT), the U.S. Dollar Index — which measures the greenback against six major currencies — rose 0.1% to 98.795, rebounding from last week’s steep losses.
Dollar extends gains ahead of CPI release
The dollar has steadily strengthened this week, as earlier concerns around the health of regional banks have largely faded. Tuesday’s steep gold correction also gave the greenback an extra lift.
That said, “a further USD rally from here will be harder to justify unless markets find reasons to price out one of the three Fed cuts expected by March. The most realistic driver of such hawkish repricing this week would be a hot CPI figure on Friday, which we don’t expect,” said Francesco Pesole, analyst at ING Group.
The September consumer price index will be the first major data release since the U.S. government shutdown began in early October. Headline inflation is forecast to edge up to 3.1% from 2.9% in August, while core CPI is expected to remain at 3.1%.
Pound slips on soft inflation print
In currency markets, GBP/USD fell 0.4% to 1.3323 after data showed that annual U.K. CPI held steady at 3.8% in September, below the widely expected 4%.
“Our call is that this 3.8% marks the peak for headline inflation, and we expect it to be 3.5% for the remaining three months of the year, before falling back from January,” Pesole said.
“All this should not be enough to bring a November rate cut back on the table, but it definitely increases the chances of a December move. For that, the Autumn Budget will play a pivotal role, where a stricter commitment to fiscal rigour can be the trigger for a ‘Christmas cut’.”
The Bank of England left interest rates unchanged at 4% at its September meeting, the lowest level in more than two years, after starting 2025 at 4.75%.
Governor Andrew Bailey warned at the time that the U.K. was “not out of the woods yet” on inflation, adding that any rate cuts would “need to be made gradually and carefully.” The next policy decision is scheduled for November 6.
Euro and yen react to geopolitical developments
EUR/USD slipped 0.1% to 1.1592 after the White House said a planned summit between U.S. President Donald Trump and Russian President Vladimir Putin was postponed when Moscow rejected calls for an immediate ceasefire.
“These developments vindicate markets’ extremely cautious treatment of Ukraine truce hopes. We remain of the view that any meaningful market reaction will require tangible progress – rather than mere speculation,” Pesole added.
Meanwhile, USD/JPY dipped 0.1% to 151.83, with the Japanese yen clawing back some losses after falling nearly 0.8% in the previous session, following Sanae Takaichi’s confirmation as Japan’s first female prime minister.
Takaichi is seen as fiscally dovish and expected to push for more government spending and resist further interest rate hikes from the Bank of Japan. Speculation over her leadership had weighed on the yen for weeks after her election as head of the Liberal Democratic Party in September.
Yuan and Aussie dollar little changed
USD/CNY edged up to 7.1244 as markets awaited further developments on U.S.–China trade tensions, though recent U.S. comments fueled optimism that a tariff escalation may be avoided.
AUD/USD added 0.2% to 0.6502.
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