The U.S. dollar firmed modestly on Thursday as investors digested renewed trade tensions between Washington and Beijing, while awaiting key U.S. inflation data that could shape the currency’s next move.
At 03:50 ET, the U.S. Dollar Index, which measures the greenback against six major currencies, was up 0.1% at 98.805, recovering after steep declines in the previous week.
Safe-haven demand lifts the greenback
The dollar found some support as investors grew cautious over the deteriorating state of U.S.-China relations, with fears mounting over a potential escalation into a trade war between the two largest global economies.
According to Reuters, Trump’s administration is weighing a plan to restrict a wide range of technology exports to China, including laptops, jet engines and other high-tech goods, in retaliation for Beijing’s recent curbs on rare earth exports.
U.S. President Donald Trump and Chinese President Xi Jinping are expected to meet in South Korea next week. While Trump has voiced optimism, he also noted that “a meeting may not take place.”
In a separate development, Trump announced sanctions against Lukoil and Rosneft, accusing Moscow of showing a “lack of serious commitment to a peace process to end the war in Ukraine.”
The move boosted crude oil prices — which are denominated in dollars — giving the greenback an extra lift.
However, “the move has merely unwound October’s losses so far, and we’d likely need to see Brent heading to $70 [from the current $64 a barrel] to result in tangible support for USD,” said ING analyst Francesco Pesole.
CPI data could be key driver
Although the U.S. government shutdown remains unresolved, the September Consumer Price Index is scheduled to be published Friday after being delayed more than a week. The report could provide the next major catalyst for dollar volatility.
“We reiterate our view that the dollar’s rebound is getting tired and probably requires some hawkish repricing to keep going,” said Pesole. “We don’t think tomorrow’s U.S. CPI will offer that opportunity as we expect a consensus 0.3% MoM core print. But surely with 50bp of easing fully priced in by year-end, any hot print could offer good support to the dollar.”
Euro dips modestly
The euro slipped, with EUR/USD down 0.2% at 1.1592, after the White House confirmed sanctions against Russia’s biggest oil producers, again citing Moscow’s “lack of serious commitment to a peace process to end the war in Ukraine.”
“EUR/USD is hovering around 1.160, a level that, in our view, can work as an anchor again today and possibly for a few more days should U.S. CPI fail to add much to the dollar narrative,” said Pesole.
The European Central Bank is set to meet next week, but expectations for new policy moves remain low given inflation is near its 2% target and eurozone growth is holding steady.
GBP/USD edged down to 1.3351 as sterling came under mild pressure after data on Wednesday showed inflation holding steady at 3.8% in September, below expectations for an acceleration to 4.0%.
Yen weakens further
USD/JPY climbed 0.4% to 152.58, the highest level in nine days, as the yen weakened following the appointment of Sanae Takaichi as Japan’s new prime minister earlier this week. Takaichi is seen as fiscally dovish and is expected to ease both fiscal and monetary policy, which adds pressure on the yen.
That said, the Bank of Japan has indicated it will continue raising interest rates if growth and inflation stay on track, with September CPI data due Friday, just ahead of its late-October policy meeting.
USD/CNY ticked lower to 7.1229, supported by strong midpoint fixes from the People’s Bank of China. Trade tensions between the U.S. and China flared again this week after reports that Washington is considering new export controls on software-powered technologies in response to Beijing’s rare earth restrictions.
AUD/USD added 0.3% to 0.6506 and NZD/USD edged up 0.1% to 0.5746.
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