The US dollar remained largely unchanged as traders focused on the upcoming US inflation report, which was delayed due to the government shutdown. The pound lagged behind other G-10 currencies after UK inflation unexpectedly stabilized in September, prompting traders to increase bets that the Bank of England would cut interest rates by the end of the year.
The Bloomberg Dollar Index was little changed; the US government shutdown has entered its 22nd day, making it the second-longest in history.
Ahead of the release of the inflation report, traders are preparing for further strength in the US dollar. The Federal Reserve is set to meet next week, with markets expecting a 25-basis-point rate cut.
“With the market having fully priced in two Fed rate cuts, the CPI faces an asymmetric risk biased to the upside, and the flow asymmetry between now and the end of the month favors buying the US dollar,” wrote Brent Donnelly, President of Spectra Markets.
He recommended going long on USD/JPY, short on AUD/USD, and short on EUR/USD for a bullish view on the dollar over the next two weeks.
GBP/USD fell 0.1% to 1.3356.
The UK Office for National Statistics announced on Wednesday that the UK Consumer Price Index (CPI) rose 3.8% year-on-year, unchanged from the previous month. This increase was below the 4% expected by economists and the Bank of England, with only one forecaster surveyed by Bloomberg predicting a flat inflation rate.
USD/JPY was little changed at 151.88; Japan’s exports grew for the first time in five months, supported by increased shipments of chips and electronic components.
Prime Minister Sanae Takenaka has ordered a new round of economic measures to alleviate the burden of inflation on households and businesses.
EUR/USD rose 0.1% to 1.1610.
USD/CAD fell by 0.2% to 1.3991; the Bank of Canada is also scheduled to hold its interest rate meeting next week.
Noah Buffam from CIBC Capital Markets wrote: ‘We are considering re-entering a short position on USD/CAD, with a target of 1.38.’
‘Recent developments reveal early signs of a shift, with hard data rebounding, which may prompt the Bank of Canada to implement a hawkish rate cut in October followed by an extended period of stable rates. Meanwhile, both the U.S. and Canada continue to make progress on trade agreements centered around metals,’ he noted.
USD/CHF fell by 0.1% to 0.7960.
Economists at UBS Group stated that the Swiss National Bank may be intervening in the market to weaken the franc.
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