Anna 
The U.S. dollar saw a modest recovery on Wednesday following a substantial decline the previous day, attributed to softer inflation data that raised doubts about the Federal Reserve’s inclination to raise interest rates. Cooler U.S. inflation figures had sparked a sell-off in the dollar.
Investor sentiment shifted after data revealed that U.S. consumer prices remained unchanged in October, with the annual increase in underlying inflation marking the smallest in two years. The Consumer Price Index (CPI) rose by 3.2% in the 12 months through October, falling below economists’ projections and indicating a slowdown from the 3.7% rise in September.
Market expectations for another rate hike at the Fed’s December policy meeting diminished significantly, with some investors now pricing in a likelihood of a rate cut in May next year, as suggested by the CME Group’s FedWatch Tool.
In the United Kingdom, the pound faced headwinds after the release of slower inflation figures. British inflation eased to its slowest pace in two years in October, coming in at 4.6%, below the forecasted 4.8% and a decline from September’s 6.7%.
CMC Markets Chief Market Strategist, Michael Hewson, commented on the market sentiment, stating, “For me, what this does concern is we’re done when it comes to rate hikes, and it’s a question of when do rate cuts come, and that’s what markets are starting to price, particularly if you look at the bond market.”
The U.S. Dollar Index, measuring the greenback against six major currencies, showed a marginal rebound at 104.26, inching up from Tuesday’s two-month low of 103.98.
The British pound, after a robust one-day gain against the dollar on Tuesday, faced a setback, declining by 0.3% to $1.2464. On the previous day, the pound had recorded its most substantial one-day gain in a year, rising by 1.8% against the dollar.
The euro experienced a 0.3% dip to $1.0848 after reaching its highest level since August the day before.
Meanwhile, the dollar/yen pair saw a 0.1% increase to 150.52, rebounding from a one-year low close to 152 earlier this week. However, experts anticipate a range-bound trajectory for dollar/yen, influenced by softer U.S. yields, potential Japanese government intervention, and a somewhat hawkish tone from the Federal Reserve.
In China, the offshore yuan briefly touched a three-month high of $7.2385 against the dollar following positive domestic industrial output and retail sales growth data. However, concerns lingered as data revealed ongoing weaknesses in China’s property sector.
The offshore yuan closed at 7.2577 per dollar, representing a 0.1% decline for the day. Volatility may arise due to a significant open interest between 150.50 and 152 in Wednesday’s New York expiry, according to LSEG data, potentially impacting the dollar/yen pair.
