The U.S. dollar retreated modestly on Wednesday, easing off recent highs as traders awaited fresh inflation data to gauge the broader impact of tariffs on consumer prices and potential implications for Federal Reserve policy.
As of 04:55 ET (08:55 GMT), the Dollar Index — which measures the greenback’s performance against six major currencies — dipped by 0.1% to 98.205, following a one-month peak in the previous session.
Focus Shifts to Producer Price Index
Tuesday’s CPI data showed U.S. consumer prices climbing 0.3% in June, marking the sharpest monthly gain since January. Economists largely attributed the uptick to rising costs from import tariffs imposed by the Trump administration.
With inflation showing signs of persistence, expectations for an imminent rate cut by the Federal Reserve have dimmed. While the central bank has maintained steady interest rates, Fed Chair Jerome Powell had earlier indicated he anticipated a summertime inflation pickup tied to trade policy shifts.
“Yesterday’s reality check on Fed cuts speculation could have a lasting effect by raising the bar for dovish repricing, and we therefore feel the risks remain skewed to a stronger dollar from here,” noted analysts at ING.
Investors now turn their attention to the upcoming producer price index (PPI) release, hoping for further insight into whether underlying inflationary pressures are continuing to build.
“Expect markets to move on any surprise, although consensus is already positioned for a relatively benign 0.2% MoM print on headline and core PPI.”
Euro and Pound Rebound After Slump
In Europe, EUR/USD bounced 0.2% to 1.1621 after dipping to a three-week low in the prior session. The euro got a slight lift after ECB policymaker Joachim Nagel emphasized the need for cautious policy amid global trade tensions.
A “steady hand” is required in navigating the uncertainty stemming from President Trump’s latest tariff escalation, Nagel told Handelsblatt, adding that the effects on pricing from geopolitical and trade conflicts remain “extremely uncertain.”
The European Central Bank previously signaled at its June meeting that no rate changes were expected in the near term, reinforcing a wait-and-see stance.
Meanwhile, GBP/USD edged up 0.1% to 1.3392 after touching near three-week lows. The modest rise came in response to June inflation data showing a surprising increase in annual consumer prices to 3.6%, the highest in over a year.
“Sterling is trading modestly stronger after the release. The risks associated with tomorrow’s jobs numbers are probably preventing any larger hawkish repricing in the Sonia curve and, by extension, keeping GBP gains contained,” ING added.
“Markets continue to price in two rate cuts by year-end, but the recent tendency has been to explore more dovish pricing.”
Asian FX Regains Ground
In Asia, currency markets steadied after overnight losses. USD/JPY slipped 0.1% to 148.82, paring back gains made following the latest U.S. inflation report, which had lifted the pair by nearly 1%.
AUD/USD rose 0.1% to 0.6521, while USD/CNY moved up by 0.1% to 7.1770 as regional currencies showed signs of stabilization.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Leave a Reply