Dollar strengthens ahead of Fed decision; sterling slips after CPI

investing.com:

Investing.com — The U.S. dollar rose in European trade Wednesday ahead of the Federal Reserve latest policy decision, while sterling fell after signs of cooling U.K. inflation and the Japanese yen continued to retreat. 

At 05:55 ET (09:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 103.800, sitting near two-week highs.

Fed officials conclude their policy-setting meeting later in the session, and are widely expected to keep interest rates at elevated levels as they continue to battle inflation.

However, traders will be studying carefully comments from Chair Jerome Powell at the accompanying press conference as well as the central bank’s new economic projections for clues as to when the officials deem it possible to start cutting interest rates. 

Earlier in March, Powell said the Fed was «not far» from gaining the confidence it needs in falling inflation to start easing rates, but a recent run of resilient U.S. inflation data has prompted a change in expectations for the pace and scale of Federal Reserve rate cuts this year.

Traders are pricing in a 59% chance of the Fed starting its easing cycle in June, the CME FedWatch tool showed, sharply lower than earlier expectations.

GBP/USD traded 0.2% lower at 1.2696, after U.K. inflation prices fell by more than expected in February, the day before the Bank of England announces its latest monetary policy decision.

Consumer prices rose by 3.4% in annual terms in February, slowing from a 4.0% increase in January, and below the 3.5% expected.

This was the lowest rate of inflation since September 2021, and offers hope that inflation, which has been persistent for some time, will finally fall back to the central