There was a rally for the Australian Dollar on Wednesday following a rise in inflation which increased the likelihood of another rate hike.
Indeed, Australia’s inflation reached a six-month top of 4% last month, which led traders to price in a 70% chance of an additional rate rise by November.
This sent the Aussie dollar up 0.46% to $0.6679, according to Reuters reports.
“Today's inflation data from Australia will be very concerning for the Reserve Bank of Australia and could well tilt a decision in favour of a hike when it next meets on 6 August,” stated Derek Halpenny, currency strategist at MUFG.
Furthermore, the Euro edged down 0.16% on Wednesday to $1.0698 following remarks from a European Central Bank official who stressed the likelihood of more rate cuts this year, which contrasts with the position of the Fed's Michelle Bowman.
Indeed, ECB governing council member Olli Rehn told Bloomberg that he considered two additional rate cuts this year to be “reasonable.”
This statement was in contrast to Fed Governor Bowman's view, who stated that she does not anticipate any rate cuts in the US this year.
ING FX strategist Francesco Pesole said investors were focused on political risks derived from French parliamentary elections.
“Euro-US Dollar price action into the weekend will be determined by French election positioning and Friday's US PCE (inflation data),” he stated.
The Dollar index, measuring the greenback against six rivals, increased 0.1% to 105.78, near a two-month high.
An increase in the Dollar's strength led to a decline in the Japanese Yen, as the US currency climbed by 0.14% to 159.895 Yen.
This movement has kept traders vigilant for indications of intervention, as it nears the level where Japanese authorities intervened to purchase Yen back in April.
Elsewhere, the British Pound declined by 0.14% to $1.2669, and the lack of movement indicated thin trading activity before the release of US data.
Citi reported that its e-traders observed interbank foreign exchange volumes around 40% lower than the 30-day averages earlier this week.
Analysts anticipate that Friday's US data will reveal a slowdown in the personal consumption expenditure index inflation to 2.6% in May, marking the lowest rate in over three years, down from 2.7% in April.