The U.S. dollar stabilized on Wednesday after overnight losses, while sterling was able to advance after inflation in the U.K. returned to the Bank of England’s target number a span of almost three years.

The dollar is stable

The U.S. currency stabilized on Wednesday after showing weakness last session as retail sales rose slightly in the previous month, signaling persistent headwinds to the momentum of consumer spending activity, even as inflation pressures show signs of cooling.

The previous week, the Federal Reserve held its interest rate steady between 5.25% and 5.50%, although it also released updated economic projections indicating that its officials had reduced their rate cut estimates for this year to one, down from three in March.

However, according to CME’s FedWatch tool, markets now project a 67% chance that the Fed will initiate rate cuts in September, and nearly 50 basis points of cuts for the remaining part of the year.

Trading ranges are likely to be limited on Wednesday as U.S. investors celebrate the June 1 holiday.

Pound rallies on the back of inflation data

GBP/USD rose 0.2% to 1.2728 on news that U.K. inflation returned in May to the Bank of England’s 2% target for the first time in nearly three years.

The reduction in annual consumer price inflation from the 2.3% recorded in April was in line with estimates, and represented a sharp decline from the 41-year high of 11.1% recorded in October 2022.

The Bank of England is to hold its last monetary policy meeting on Thursday.

EUR/USD was down 0.1% at 1.0735, with the euro continuing to be weighed down by political fears in France and the rest of the bloc.

The Australian dollar rallied, boosted by the Reserve Bank of Australia’s hawkish stance

In Asia, USD/JPY was down 0.1% to 157.77. Minutes from the Bank of Japan’s April monetary policy meeting indicated that policymakers discussed the impact that yen weakness could have on prices.

However, the release of the minutes had little impact on the market as investors eagerly await the next BOJ meeting in July.

USD/CNY was up 0.1% to 7.2569, while AUD/USD was up 0.3% to 0.6672 after Reserve Bank of Australia Governor Michele Bullock made a strong statement at the press conference following the central bank’s interest rate decision.