By Joice Alves and Ozan Ergenay
LONDON (Reuters) -Sterling edged lower on Wednesday after British consumer price inflation fell in October as expected, raising expectations the Bank of England will cut rates next month, while the dollar edged higher ahead of Nvidia’s earnings release and key U.S. data.
In the meantime, the yen hit a 10-month low against the dollar after a meeting between Bank of Japan Governor Kazuo Ueda and key government ministers on Wednesday, including Finance Minister Satsuki Katayama, who said government was closely watching the market “with a high sense of urgency”.
Britain’s consumer price inflation fell to 3.6% in October, from September’s joint 18-month high of 3.8%, as expected by the BoE and economists polled by Reuters, official figures showed on Wednesday.
BOE EXPECTED TO CUT RATES IN DECEMBER
The data cemented expectations that the BoE could cut interest rates in December.
“With the (UK) labour market softening more than expected, GDP growth weaker than the BoE projected, and underlying inflation tracking a little lower than BoE expectations, we think Governor (Andrew) Bailey will feel more confident about cutting Bank Rate below 4%,” said Deutsche Bank chief UK economist Sanjay Raja.
Sterling was down 0.17% against the dollar at 1.3121, briefly touching its lowest since Friday, when British markets were whipped around as speculation swirled around the highly-anticipated November 26 budget.
Elsewhere, investors struggled for direction, while U.S. agencies were clearing a backlog of data after a prolonged government shutdown.
The dollar index, which measures the greenback’s strength against a basket of six currencies, edged 0.15% higher at 99.75.
The yen eased 0.4% to 156.15, its lowest against the dollar since January.
The dollar had strengthened alongside demand for Treasury bonds even as odds of a Federal Reserve rate cut fell, which likely indicated safe-haven buying, analysts said.
“We’re heading into very important releases in the U.S., so naturally there’s a bit of wait-and-see momentum, although the momentum seems to be in favour of the dollar,” said Francesco Pesole, FX strategist at ING.
“I think this mostly reflects a combination of safe-haven flows, to some extent, and then the markets remain a bit sceptical about the possibility of the Fed pricing in December.”
Fed funds futures are pricing an implied 47% probability of a 25-basis-point cut at the December 10 meeting, compared with a 42.4% chance a day earlier, according to the CME Group’s FedWatch tool.
U.S. President Donald Trump renewed his attacks on Federal Reserve Chair Jerome Powell on Tuesday, saying “I’d love to get the guy currently in there out… but people are holding me back”. Powell’s term as Fed chair is up in May.
PIVOTAL MOMENT
FX investors were also keeping eyes on earnings reports as chip giant Nvidia was due to release its third-quarter results later in the day.
Global equity markets have been hit hard this week, with the S&P 500 on a four-day losing streak on concerns about valuations of AI stocks.
“Today we have this Nvidia earnings, so those will be probably the pivotal moment for equities,” ING’s Pesole said.
“It’s not a very common thing to happen, that one earnings release has major impacts on the FX market. If those are extremely good or extremely bad, then obviously it will be a very meaningful impact,” he said.
U.S. JOBLESS CLAIMS SURGE
Adding to the sense of market anxiety, initial jobless claims data released on Tuesday showed the number of Americans on jobless benefits surged between mid-September and mid-October.
Another test will come with the delayed release of Thursday’s non-farm payrolls release for September.
Amid the rout in risk assets, the Australian dollar fell 0.4% to $0.6485, while the kiwi slipped 0.5% to $0.56300.
(Reporting by Joice Alves and Ozan Ergenay in London; additional reporting by Gregor Stuart Hunter in Singapore; Editing by Alex Richardson)
