On Wednesday, a strong dollar rally slowed down as traders were a little more cautious. They awaited a crucial U.S. consumer inflation report that was expected later in the day, keeping investors from making their big moves.
According to a Reuters report, the dollar steadied earlier in the Asian session after dropping overnight.
Earlier in the week, it had hit a two-year high. However, it soon backed away. This pullback was contributed to by a softer U.S. producer prices report, which eased Treasury yields from their peaks.
The euro hovers above its recent two-year low against the greenback
Against the dollar, the euro hovered above its recent two-year low and last exchanged for $1.0303 at the time of this writing. On the other hand, the pound fell 0.09% against the greenback to $1.2205. Meanwhile, higher borrowing costs and worries about the UK’s fiscal health kept applying pressure on the Sterling.
Investors are closely eyeing Inflation data in the United Kingdom which will come out later on Wednesday. A weak economy and domestic price pressures catalyze the mounting pressure on Chancellor Rachel Reeves, the UK’s finance minister.
Across the other side of the world, the yen’s exchange rate against the greenback remained relatively unchanged at $157.36 at the time of this publication. The Japanese fiat currency drew support from incoming policies that prospect a possible rate hike from the Bank of Japan next week. The Kiwi held at $0.56004 after a slight 0.05% dip while the Aussie retained partial gains realized overnight and was exchanging hands for $0.6189.
Lesser hopes for Feds cutting interest rates this year
Core consumer prices in the U.S. are anticipated to increase by 0.2% in December. An upside shock dims hopes that the Federal Reserve could cut interest rates faster this year.
It comes after last week’s strong jobs data, which showed the U.S. economy was resilient. Traders scaled back on expectations that the Fed would be easing further.
Analysts say the dollar impact of the inflation data will be temporary. Obviously, the market continues to look to the incoming Donald Trump term, including his tariff position, immigration policies, and proposed taxation strategies.Â
According to Carol Kong, a currency strategist at Commonwealth Bank of Australia, the markets are waiting for Trump’s administration policies and how they will impact prices in the U.S. Kong further emphasized that FOMC officials may seemingly be adopting a more hawkish stance moving forward but they are not so alarmed by recent inflation numbers. Kong explained that the officials are more concern
FOMC investigates the inflation impact of Trump’s tariffs, Jerome Powel says
Fed Chair Jerome Powel said in the latest press conference that the U.S. is about to enter a new phase with uncertainty surrounding Trump’s return to the White House. He told the press that the FOMC is debating the potential impact of tariffs on inflation.
As Trump’s inauguration inches closer day by day, market participants have been highly responsive to headlines surrounding his fiscal proposals and policy plans. Analysts predict that the new reforms under the incoming administration will stroke America’s inflation.
The threat of existing tariffs, alongside expectations of fewer Fed rate cuts, has made the greenback strong across a basket of major currencies. The imminent policy changes also caused Treasury yields to surge. Traders have also initiated mass sell-offs in the stock market, causing the S&P 500 to shed off most of the gains witnessed when Trump won the elections on November 5th.
The crypto market also had a rough start this year following the economic uncertainty in the U.S. Since marking its all-time high of $108k on December 15, 2024, Bitcoin has declined by 10.4%. The asset slid below $90k, marking its biggest fall since the year began.
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