Peter Nurse

Investing.com – The dollar edged lower in early European trade Wednesday in calm trading ahead of next week’s Federal Reserve meeting, while the U.K. budget places sterling in focus.

The Dollar Index which measures the greenback’s performance against six currencies traded at 0.21% less than the previous day (0630 GMT) and was trading at 93.892 as of 2:30 AM ET (0630 GMT).

traded 0.1% lower at 114.03, edged 0.1% higher at 1.1603, while slipped marginally to 1.3763 ahead of Britain’s annual budget.

The Federal Reserve has now gone into a blackout period ahead of next week’s policy-setting meeting, and ahead of this traders are focusing on the release of a series of important data releases.

Wednesday’s sees the release of the September , but the 3Q release on Thursday and the September deflator on Friday will attract the most attention.

The Australian core inflation rate rose to its highest annual pace in 2015 and traders were forced to adjust their prices to reflect earlier increases in interest rates.

While the headline consumer price index increased 0.8% for the third quarter, and 3.0% for 2013, it was well below the 1.8% forecast. However, the core inflation annual rate accelerated to 2.1%. This puts the RBA back within its 2%-3% target range, for the first time since 2006.

Sterling could fall Wednesday, as U.K. Chief Chancellor of Exchequer Rishi Unak releases his annual budget. 

Much of the talk ahead of this set piece has been about Sunak loosening the purse strings, following leaks that he is set to end the public sector pay freeze, but the Chancellor still faces a tricky balancing act in this year’s budget. He could incite more inflation, as the Bank of England is already considering tightening its monetary policy. But too much and it would be a risk to stall an already fragile recovery.

“The pre-budget leaks have typically involved new spending plans rather than how this is going to be paid for. That does perhaps leave GBP a little vulnerable tomorrow should the UK Chancellor announce any kind of fiscal consolidation,” said analysts at ING, in a note.

The session’s latest policy-setting meeting was scheduled for later in the day. However, trading was largely flat at 1.2391 It is likely that the central bank will reduce its weekly government bonds purchases once more. This marks the fourth consecutive time in the last 12 months when the central bank has reduced its program. The move opens the door to interest rate rises next year.