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Dollar Down as Sterling Rises After May Secures Cabinet Support

11/15/2018, 10:52:16 AMMarket Analysis
Dollar Down as Sterling Rises After May Secures Cabinet Support

The dollar continued to give up gains against its rivals Wednesday following subdued inflation data and a rise in sterling after UK Prime Minister Theresa May secured support from her Cabinet for a draft Brexit deal.

GBP/USD rose 0.18% to $1.3005 after May said that her Cabinet had backed her Brexit plan, adding it was in the national interest but that there would be difficult days ahead.

“The collective decision of cabinet was that the government should agree the draft withdrawal agreement and the outline political declaration,” May said outside her Downing Street residence after a five-hour cabinet meeting.

“I firmly believe with my head and my heart that this is a decision in the best interests of the entire United Kingdom.”

The rise in sterling added to downside momentum in the greenback, which had come under pressure in the wake of a subdued inflation report.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.41% to 96.75.

The Labor Department said Wednesday its core consumer price index rose 0.2% last month, in line with economists' estimates, but for the 12 months through October consumer prices rose 2.1%, lower than forecasts.

The subdued inflation report, however, did little to puncture optimism for further rate hikes, with analysts touting further room for prices to increase in the year ahead.

"While businesses are beginning to see a break on some commodity prices, tariffs and a tight labor market are pushing other costs higher," Wells Fargo said. "We expect core inflation to trend up in the year ahead, spurred by more businesses willing to raise prices."

EUR/USD rose 0.18% to $1.1310 after Italy re-submitted its draft budget for 2019 to the European Commission, but left its growth and deficit forecasts unchanged, raising the risk of backlash from lawmakers in Brussels.

USD/JPY traded rose 0.36% to Y113.42 as lingering concerns about slowing Chinese economic growth weighed on risk sentiment, supporting demand for the safe-haven yen.

USD/CAD, meanwhile, rose 0.04% to C$1.3245 as gains in the pair were limited after oil prices firmed, boosting the oil-price-sensitive loonie.