Dollar falls as inflation data fuels bets that the Federal Reserve could start cutting interest rates as early as September.
Core inflation rose 0.2%, below economists’ forecasts for a 0.3% increase.
The odds of a second rate cut later this year have increased. Investors had reduced expectations for rate cuts after the May jobs report, which showed employers added more jobs than expected during the month, while wage inflation rose more than expected.
Investors will now focus on the Fed’s statement at the end of its two-day meeting on Wednesday. The main focus will be on economic projections and interest rates updated by Fed officials.
It is now likely to reflect an expectation of two interest rate cuts this year, down from the median projection of three cuts when the estimates were last released in March. Fed policymakers have said they will want to see several months of improvement in inflation before cutting interest rates.
The dollar index fell 0.83% to 104.39. The euro gained 0.82% to $1.0827, after falling to $1.07195 on Tuesday, its lowest since May. The single currency came under pressure after far-right parties gained ground in the European Parliament elections, prompting French President Emmanuel Macron to call early elections in his country, to be held in two rounds on June 30 and July 7 .
Macron reiterated on Wednesday that he will not resign if his side does not win the elections. Marine Le Pen’s party, the Rassemblement National, is the most popular party in France ahead of the parliamentary elections.
The Bank of Japan also meets this week and is widely expected to keep interest rates stable and consider whether to offer clearer guidance on how it plans to shrink its huge balance sheet. The dollar fell 0.71% to 155.95 yen, after hitting a one-week high of 157.40 on Tuesday. The yen’s decline to a 34-year low of 160.245 per dollar in late April triggered several Japanese official interventions totaling 9.79 trillion yen ($62 billion).
Among cryptocurrencies, bitcoin gained 2.88% to $69,202.
