The Australian dollar rose after a surprising jump in inflation on Wednesday, raising the possibility of another interest rate hike, while the US dollar continued to pressure the Japanese yen. Movements in other markets were relatively weak as investors awaited the release of the Federal Reserve’s preferred inflation gauge on Friday.
Australian inflation accelerated to a six-month high of 4% in May, prompting traders to estimate a 70% chance of another interest rate hike by November, pushing the Australian dollar higher in morning trading. A similar surprise in Canadian inflation briefly lifted the Canadian dollar to a three-week high as investors scaled back their expectations for further cuts.
Elsewhere, the euro fell after a European Central Bank policymaker discussed the chances of further interest rate cuts this year, a stance notably different from that of Federal Reserve’s Michelle Bowman.
Olli Rehn, a member of the European Central Bank’s Governing Council, told Bloomberg that two additional cuts this year seem “reasonable.” This contrasts with statements from Federal Reserve Governor Bowman, who said she does not expect any US interest rate cuts this year.
The US Dollar Index, which measures the currency’s performance against six others, rose to a two-month high. The dollar’s strength hurt the Japanese yen, with the US currency rising 0.14% to 159.895 yen. This move kept traders on alert for signs of intervention.
Analysts expect US data released on Friday to show a slowdown in inflation in the Personal Consumption Expenditures (PCE) index to 2.6% in May, the lowest level in more than three years, down from 2.7% in April. The Chinese yuan also faced pressure due to the strong dollar.
