The Dollar rose on Wednesday but gains were constrained amid indications that the Federal Reserve would likely continue cutting US interest rates to heal an ailing economy even as inflation pressures mount.
Minutes of the Federal Open Market Committee's Jan. 29-30 policy meeting showed most officials saw risks to growth as weighted on the downside. The Fed also lowered its 2008 growth forecast to between 1.3% and 2%, from a forecast of between 1.8% and 2.5% in November. News that underlying inflation accelerated at a faster-than-forecast pace in January had earlier cooled expectations of steep rate cuts by the Fed, sending EurUsd to a session low of 1.4615. The Fed has lowered its benchmark overnight lending rate by 225bp to 3% since mid-September. Fed funds futures show a 90% chance of a 50bp easing next month and a 25bp reduction has been fully priced in.
Yesterday, EurUsd was down 0.04% at 1.4722. It slipped earlier down to 1.4615 after a top German politician said the country's regional state-backed Landesbanks were in crisis.
Data showed the US core CPI rose 0.3% in January, the strongest monthly rise since June 2006. Underlying inflation trends are closely watched by the Fed in setting interest rates. St. Louis Federal Reserve President William Poole said while the rise in January consumer prices was not-welcome, the figures were no cause for alarm.
UsdJpy last traded unchanged at 108.04, off intraday highs at 108.37, boosted by a rise in US stocks. UsdChf gained 0.38% to 1.0985, while GbpUsd dropped to a one-month low at 1.9363. The Cable last traded at 1.9421, down 0.3% from late on Tuesday.
Oil's surge above $100 per barrel, marking a record for a second straight day, pushed the UsdCad to a session low of 1.0106. It last traded down 0.29% at 1.0126.
Investors will watch the weekly jobless claims data on Thursday for fresh clues on the health of the labor market. The Fed has forecast the unemployment rate at between 5.2 and 5.3% this year. The jobless rate is currently at 4.9%.