By Peter Nurse
Investing.com - The U.S. dollar stabilized in early European trade Wednesday ahead of the Federal Reserve's rate decision after a sharp drop overnight in the wake of cooler-than-expected inflation data.
At 03:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged lower to 103.547, just above the six-month low of 103.535 seen overnight.
U.S. consumer prices rose less than expected for a second straight month in November, suggesting that inflation may have peaked after surging to 40-year highs.
This supports the case for the Fed to start to slow the rate of its interest rate increases, with a hike of 50 basis points largely priced in for later Wednesday after four consecutive increases of 75 basis points.
This puts the focus squarely on Chair Jerome Powell's comments after the decision, with investors wanting to know his thinking regarding interest rates going into next year and over the next couple of years.
The Fed’s so-called dot plot will also carry their forecasts for gross domestic output, inflation, and unemployment as well.
EUR/USD rose 0.1% to 1.0635, falling back from the six-month high of 1.0673 it touched in the previous session, ahead of the release of the Eurozone industrial production data for October.
The European Central Bank meets on Thursday and looks set to slow its aggressive interest rate hikes, lifting interest rates by 50 basis points with inflationary pressures finally showing signs of abating.
GBP/USD rose 0.2% to 1.2376 after the U.K. consumer price index rose by just 0.4% on the month, down from 2.0% in October, bringing the year-on-year rate down to 10.7% from 11.1%.
The Bank of England meets on Thursday, and while this release could ease the pressure on the central bank to keep raising interest rates against the backdrop of a recession, it's expected to hike by 50 basis points again.
USD/JPY fell 0.1% to 135.39, with the Japanese yen seeing some support despite the country's industrial production being revised even lower in October, as rising input costs due to elevated inflation and weakening overseas demand weighed heavily on local manufacturing.
The risk-sensitive AUD/USD rose 0.1% to 0.6861, while USD/CNY edged lower to 6.9425, with the Chinese yuan hovering around a three-month high on hopes that the reversal of anti-COVID policies will drive an economic recovery in the country.