Dollar drops as traders gear up for weak U.S. inflation
By Amanda Cooper
LONDON (Reuters) -The dollar sank to a two-month low on Wednesday ahead of a key read of U.S. inflation, while sterling hit 15-month highs after wage growth data fed expectations that the Bank of England (BoE) has further to go in raising rates.
The yen strengthened past 140 to the dollar for the first time in a month, helped by growing expectations that the Bank of Japan (BOJ) will unveil changes to its ultra-low interest-rate policy at this month's meeting.
Investors were laser-focused on U.S. inflation data due later on. Core consumer prices, which exclude food and energy, are expected to have risen 5% on an annual basis in June. The figures could give a steer on how much more the Federal Reserve might raise interest rates.
Ahead of the release, the U.S. dollar fell to a two-month low against a basket of currencies, underperforming most notably against the Japanese yen.
The key number in the consumer price report will likely be the monthly change in the core rate, according to Jordan Rochester, currency strategist at Nomura.
A number of indicators are pointing clearly to a marked drop in inflation, including used-car prices, meaning some in the market are looking for a rise of just 0.2% in the core rate in June. Economists polled by Reuters expect a rise of 0.3%.
«In terms of the latest rhetoric and narrative, people are looking for 0.2%. That's what we're looking for. If we get 0.3%, that's slight dollar strength, so we could see dollar/yen above 140. If we get 0.4%, it means all the models are wrong and we're missing something,» he said.
«I think that will materially move the needle, because all the other charts we have suggest that inflation pressures in the U.S. really are slowing down quite
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