London: The dollar edged lower for a second consecutive day on Wednesday on growing expectations of a US rate cut next week while high-yielding currencies suffered due to ongoing trade tensions.
Against a basket of its rivals, the dollar edged 0.1 per cent lower to 96.64 and just above a 2-1/2 month low of 96.46 hit last week.
Trade differences between the world’s two biggest economies are starting to reflect in data with Chinese factory inflation slowing in May while recent comments by Fed officials have become increasingly cautious.
“The prospect of an unending trade dispute between the world’s two largest economies is a nightmare scenario and, despite their respective government officials’ comments, both the US and China are seeing a steady deceleration in their domestic growth,” said Konstantinos Anthis, Dubai-based head of research at ADSS.
Those concerns have also undermined appetite for risky currencies with the Australian dollar weakening 0.3 per cent versus the Swiss franc and the perceived safe-haven Japanese yen rising 0.2 per cent against the dollar.
A Fed watch tool by CME assigns a 18 per cent probability of a US rate cut next week and a 68 per cent probability of a cut in July.
Rising rate cut bets have also been helped by easing inflation pressures with underlying price pressures remaining muted. Core CPI inflation is expected to print at 1.9 per cent in May compared to 2 per cent in April.
“We do not expect today’s CPI report to challenge the Fed’s view that inflation is currently ‘subdued’,” MUFG strategists said in a daily note.
The euro was broadly steady at $1.1360 and in close reach of a three-month peak of $1.1348 scaled on Friday.
The single currency was little affected by US President Donald Trump’s accusation that Europe was devaluing the euro, which has gained roughly 1.4 per cent against the dollar so far in June.