Before the release of closely-watched U.S. inflation statistics on Thursday, the dollar moved in a narrow range in early European trading, while sterling fell in anticipation of the possible end to the Bank of England's emergency bond-buying program.
The Dollar Index, which compares the value of the dollar to a basket of six other currencies, nudged up 0.1% to 113.332 at 07:00 GMT, staying near to a 20-year high.
The central bank's September meeting minutes, released on Wednesday, revealed that officials unanimously agreed on the need for further monetary tightening to battle inflation, maintaining the dollar's strong demand.
This is the story that keeps the dollar supported and the overall trend in risk assets unfavorable, and we don't anticipate it to alter until 1Q23 at the earliest, according to analysts at ING.
The newest U.S. inflation numbers will be released Thursday, and it is anticipated that they will indicate that annual CPI inflation stayed above 8% in September and was still quite near to the 40-year peak reached earlier in 2022.
Sterling gave up some of its gains from Wednesday due to uncertainty over whether the Bank of England will stop supporting the debt markets on Friday, and the GBP/USD exchange rate dropped 0.3% to 1.1068.
The central bank will stop providing emergency assistance for bonds at the end of this week, according to Bank of England Governor Andrew Bailey's prior statements this week. However, with the cost of borrowing for the British government at 20-year highs and the incoming U.K. government appearing committed to its spending plans, Bailey is expected to face pressure to reverse course.
The extension of the emergency gilt buying "does seem to be holding the key at the moment to avoiding another big sell-off in the gilt market and the pound," ING continued.
After German consumer inflation data for September showed strong levels, 10.9% higher year-over-year when compared to other European nations, the EUR/USD dipped to 0.9701.
"Markets are virtually fully pricing in a 75bp raise (70bp included in the OIS curve) and a total of 230bp of tightening by mid-2023 with two weeks before the October ECB meeting," ING noted.
The USD/JPY exchange rate decreased by 0.1% to 146.82, which is significantly above the high of last month of 145.90, which forced the Japanese government to step in and buy yen, and not far from the high of August 1998 of 147.64.
Data released on Thursday revealed that in September, Japanese PPI inflation reached its highest level in 41 years. Without concerted action, the yen may continue to decline as the country's authorities have not yet begun to tighten monetary policy in an effort to offset this rising inflation.
NZD/USD dropped 0.1% to 0.5597, slightly up from its lowest level since March 2020, recorded on Tuesday, while AUD/USD dropped 0.1% to 0.6271, after falling to a 2-1/2-year bottom of 0.6235 in the previous session.
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