The dollar edged lower in early European trade Wednesday in calm trading ahead of next week’s Federal Reserve meeting, while the U.K. budget places sterling in focus.
At 2:30 AM ET (0630 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 93.892.
The Federal Reserve has now gone into a blackout period ahead of next week’s policy-setting meeting, and ahead of this traders are focusing on the release of a series of important data releases.
Elsewhere, AUD/USD rose 0.2% to 0.7513 after Australian core inflation rose at its fastest annual pace since 2015, prompting traders to price in earlier hikes in interest rates.
The headline consumer price index rose 0.8% in the third quarter and 3.0% for the year, much as expected, but the annual measure of core inflation accelerated to 2.1%, well above the 1.8% expected and putting it back in the RBA's 2% to 3% target range for the first time in six years.
Sterling could be vulnerable Wednesday as U.K. Chancellor of the Exchequer Rishi Sunak delivers his annual budget.
Much of the talk ahead of this set piece has been about Sunak loosening the purse strings, following leaks that he is set to end the public sector pay freeze, but the Chancellor still faces a tricky balancing act in this year’s budget. Too much largesse and he risks sparking more inflation with the Bank of England already looking at tightening monetary policy, but too little and he risks strangling an already hesitant recovery.
“The pre-budget leaks have typically involved new spending plans rather than how this is going to be paid for. That does perhaps leave GBP a little vulnerable tomorrow should the UK Chancellor announce any kind of fiscal consolidation,” said analysts at ING, in a note.
USD/CAD traded largely flat at 1.2391 ahead of the Bank of Canada latest policy-setting meeting later this session. The central bank is expected to reduce its weekly government bond purchases again, marking the fourth time over the past 12 months the central bank has rolled back its program, paving the way for the start of interest rate increases next year.