The US dollar hit multi-month lows on Wednesday, while the Japanese yen strengthened sharply, and sterling rose to a one-year high after better-than-expected UK inflation figures.

Dollar loses ground

The dollar retreated on Wednesday on confidence that the Federal Reserve will start cutting interest rates in September to support and boost the slowing economy.

US retail sales failed to rise in June, and while this did not significantly change market sentiment about a rate cut at the next Fed meeting, as it is absolutely priced in.

On the economic front, the Fed’s Beige Book will be closely scrutinized for signs of economic weakness, as will June housing starts and building permits data.

GBP/USD rallies on the back of UK inflation data.

GBP/USD rose nearly 0.5% to 1.3038, with the pound reaching its highest level since mid-July last year, after data released on Wednesday showed UK inflation rose slightly more than estimated.

The headline consumer price index did not budge from 2 per cent a year in June, compared with estimates for a 1.9 percent rise, while closely watched services inflation came in at 5.7 per cent.

The Bank of England is due to meet in early August, and the data released caused traders to reduce bets on a rate cut, which helped sterling.

EUR/USD rose about 0.4% to 1.0938, with the euro benefiting from dollar weakness ahead of Thursday’s European Central Bank meeting.

According to economists polled by Reuters, the ECB is expected to keep interest rates unchanged after the June cut, although it will cut its deposit rate twice more this year, possibly in September and December.

Yen soars on intervention speculation

USD/JPY plunged 1.3% in Asia to 156.37, and the yen rallied sharply from 162 points in recent sessions, putting traders on guard against the possibility of further intervention by Japanese authorities to prop up the currency.

Bank of Japan data released on Tuesday showed that 2.14 trillion yen was spent last Friday. Together with the approximate amount spent on Thursday, it is assumed that Japan bought almost 6 trillion yen in intervention the previous week.

USD/CNY fell 0.2% to 7.2558, retreating from eight-month highs, on concerns about what a potential Trump presidency could mean for US-China relations.