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Dollar Weakens Ahead Of Inflation Data

Sterling strengthened yesterday after data showed British inflation unexpectedly stayed close to its highest levels in six years in January, firming up investors’ bets that the Bank of England will raise interest rates again in May.

The BoE surprised financial markets last week by indicating that rates could move up faster than previously expected, as the Bank wanted to bring inflation back to its target of two percent within two years rather than three.

This prompted markets to price in as much as a 70 percent chance of a quarter-point rise in interest rates by May, and a roughly 50 percent chance of a further increase in rates to one percent by the end of the year – a level last seen in 2009.

The dollar fell versus the euro for the fourth consecutive day today with investors nervous ahead of key U.S. inflation numbers due later amid a fragile recovery in equity markets.

The dollar, measured against a basket of currencies, has now given up two-thirds of the gains it notched up this month when investors rushed into the greenback as equity markets suffered a violent sell-off.

The Euro has been higher due to strong German economic numbers for the fourth quarter of 2017 underlined the strength of the eurozone economy.
U.S. January inflation data is due at 1330 GMT, and the numbers could either upset the equity market’s fragile recovery or clear the way for additional gains.

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