The dollar experienced a broad decline on Wednesday, following a brief and modest surge due to better-than-anticipated U.S. retail sales data. Traders are now concentrating on the likelihood of Federal Reserve rate reductions as early as September. Meanwhile, the New Zealand dollar increased as domestic inflation remained elevated in the second quarter, despite the overall figure falling short of expectations. The kiwi rose by 0.35% to $0.6071, with futures indicating that markets anticipate approximately three rate cuts from the Reserve Bank of New Zealand (RBNZ) this year.
"Today's CPI release confirms that inflation is almost certain to revert to the RBNZ's 1-3% target by Q3," stated Abhijit Surya, an economist at Capital Economics. "Given the weak economy and a labor market that is rapidly loosening, there is an increasing likelihood that the bank will begin easing policy at its next meeting in August." In the broader market, the dollar struggled to maintain its gains post-Tuesday's U.S. retail sales data, which highlighted consumer resilience in the world's largest economy and supported growth prospects for the second quarter.
Against the greenback, the euro increased by 0.06% to $1.0906, while the Australian dollar rose by 0.1% to $0.6740. The dollar index slightly decreased to 104.19. "Ultimately, the narrative that best captures this situation is that of a Goldilocks economy," commented Kyle Rodda, a senior financial market analyst at Capital.com. "Yes, retail sales are robust, at least nominally, and consumer demand is strong. However, the more crucial data is the inflation data, which suggests that the Fed is poised to cut rates fairly soon." Investors have fully anticipated a rate cut from the Fed by September and are expecting over 60 basis points of easing by year-end.
Elsewhere, the sterling remained stable at $1.2972, ahead of UK inflation data due later on Wednesday. Consumer prices are anticipated to have further cooled in June, which could strengthen the case for an imminent easing cycle from the Bank of England. "We anticipate that June's UK inflation report will further solidify expectations of an interest rate cut at the Bank of England's August meeting," said Henk Potts, a market strategist at Barclays Private Bank. "We forecast that the headline consumer price index could continue to ease, reaching 1.9% (year-on-year), driven by disinflationary pressures in both core goods and services." The yen was last seen steady at 158.34 per dollar, with traders remaining vigilant for any intervention from Japanese authorities to support the currency, following potential actions last week. Bank of Japan data released on Tuesday indicated that Tokyo might have spent 2.14 trillion yen ($13.5 billion) intervening on Friday last week. Combined with the estimated amount spent on Thursday, Japan is believed to have intervened to the tune of nearly 6 trillion yen last week.
