Investing.com - The dollar gained ground against a basket of the other major currencies on Wednesday as the pound and the euro both weakened after softer than expected inflation readings in the UK and euro zone.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.22% to 89.41 by 05:39 AM ET (09:39 AM GMT), recovering from the three week low of 88.95 reached on Tuesday.
The pound was sharply lower, with GBP/USD falling 0.76% to 1.4183 after data showing that Britain’s inflation fell to 2.5% in March, its lowest in a year.
With inflation falling back towards the Bank of England’s 2% target markets took the view that a May rate hike is now less likely.
But the inflation figures were also the latest indication that a cost of living squeeze in the UK is easing, which could allow the economy to better withstand higher borrowing costs.
Sterling was also lower against the euro, with EUR/GBP advancing 0.69% to 0.8718.
The euro touched the day’s lows against the dollar after data showing that euro area inflation accelerated less than initially estimated last month.
Prices in the euro area rose by an annualized 1.3% in March, up from February’s 1.1%, but weaker than expectations for an increase of 1.4%.
EUR/USD fell to a low of 1.2337, before pulling back to 1.2365, almost unchanged for the day.
The dollar was also higher against the safe haven yen, with USD/JPY up 0.23% to 107.26 amid improving risk appetite as concerns over trade friction between the U.S. and China and tensions in the Middle East subsided.
The Canadian dollar was lower, with USD/CAD rising 0.3% to 1.2589, backing away from the seven week lows set in the previous session ahead of the Bank of Canada’s monetary policy announcement later Wednesday.
While the BoC was not expected to raise rates expectations have been growing for a rate hike as soon as next month after recent strong economic data and investors will be looking for any hints that could support this view.