The US dollar steadied against a basket of currencies on Wednesday, pausing after a three-day rally, while the British pound weakened following data showing that UK inflation for September came in weaker than expected.
The Japanese yen rose slightly against the dollar after touching a one-week low on Tuesday, as Reuters reported that newly appointed Prime Minister Sanai Takaiichi is preparing to unveil an economic stimulus package expected to exceed last year’s ¥13.9 trillion ($92.19 billion) plan, aimed at helping households cope with inflation.
After sharp declines, gold stabilized at $4,119.80 per ounce following its biggest one-day drop in five years during the previous session.
British Pound Falls as Inflation Slows Below Expectations
The pound was the weakest among major currencies on Wednesday after data showed UK inflation unexpectedly held steady at 3.8%, missing forecasts from both economists and the Bank of England.
The pound fell 0.4% against the dollar to $1.3318 and 0.3% against the euro to 87.04 pence.
Francesco Pesole, currency strategist at ING, said, “When the Bank of England started sending hawkish signals recently, it was based on the view that inflation would be stronger than economists expected — but that doesn’t seem to be the case now.”
He added that the latest data opens the door for a possible rate cut in December, though not in November since that would be “too early before the budget announcement.”
Market pricing now shows about a 75% probability of a rate cut by the Bank of England before year-end.
Focus Turns to the Japanese Yen
The dollar slipped 0.1% to ¥151.85 in late trading.
The yen has lost roughly 2.5% this month amid Takaiichi’s campaign for prime minister — its biggest monthly drop against the dollar since July — as investors anticipate that her expansionary fiscal stance and uneasy relationship with the Bank of Japan could weigh on the currency.
Pesole of ING noted, “Takaiichi’s first remarks as prime minister suggest she wants to calm markets and avoid worsening yen weakness for now.”
Known for her support of loose fiscal and monetary policies, Takaiichi said Tuesday that monetary policy decisions remain the prerogative of the Bank of Japan.
Meanwhile, newly appointed Finance Minister Satsuki Katayama said Wednesday that economic and monetary policy coordination between the government and the BOJ is essential to ensure effectiveness.
The Bank of Japan is set to announce its next policy decision on October 30, with futures markets pricing a 20% chance of a 25-basis-point rate hike to 0.75%.
Dollar Steadies
The dollar index, which tracks the greenback against six major peers, was flat at 99.01 after three consecutive days of gains.
This came after President Donald Trump on Tuesday rejected a request from senior Democratic lawmakers to meet before the end of the ongoing three-week US government shutdown.
According to prediction platform Polymarket, hopes for a quick resolution to the shutdown are fading, with current odds showing a 40% chance it will last until November 16 or later.
The political standoff complicates the Federal Reserve’s task ahead of its October 29 meeting, though markets still expect a 25-basis-point rate cut next week followed by another in December, according to a Reuters poll of economists who remain deeply divided over the path of rates through next year.
CME FedWatch data shows a 97.3% probability of a quarter-point cut, down slightly from 99.4% the previous day.
The euro was steady at $1.1597 after a planned summit between Trump and Russian President Vladimir Putin was postponed, following Moscow’s refusal to agree to an immediate ceasefire in Ukraine.
