The U.S. dollar edged lower on Wednesday, retreating from a recent rally as markets digested consumer price data and looked ahead to a key report on producer inflation for further signals on Federal Reserve policy.
By 04:55 ET (08:55 GMT), the Dollar Index — which monitors the dollar’s movement against six major global currencies — slipped 0.1% to 98.205, a mild pullback after reaching a one-month high on Tuesday.
Inflation in Focus Ahead of PPI Release
Tuesday’s data showed a 0.3% increase in U.S. consumer prices for June, the steepest monthly jump since January. The rise, driven in part by escalating import tariffs, has reinforced concerns that inflation may remain elevated longer than anticipated.
While the Fed has maintained interest rates at current levels, Fed Chair Jerome Powell previously warned that trade-related inflationary pressures would likely emerge during the summer months. His outlook now appears to be playing out.
Analysts at ING commented, “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.”
The next data point in focus is the Producer Price Index (PPI), expected later in the day. Any surprise in the numbers could prompt a market reaction, particularly as traders are already bracing for a modest monthly gain.
“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 Regain Footing
In the currency markets, the euro managed to recover slightly, with EUR/USD climbing 0.2% to 1.1621 after dipping to a three-week low. Comments from ECB policymaker Joachim Nagel helped support sentiment.
He noted that a “steady hand” is needed to navigate the unpredictable effects of the latest U.S. tariff threats, and emphasized that the inflationary consequences of the geopolitical environment remain “extremely uncertain.”
The ECB had previously signaled no immediate change in policy when it meets again next week.
The British pound also gained ground, with GBP/USD inching up 0.1% to 1.3392. The move came after data showed inflation in the U.K. unexpectedly hit a 3.6% annual rate in June — the highest reading in over a year.
ING analysts noted, “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.”
“Markets continue to price in two rate cuts by year-end, but the recent tendency has been to explore more dovish pricing.”
Asian Currencies Stabilize
In Asia, currencies made a modest recovery after falling in the wake of the U.S. inflation data. USD/JPY declined 0.1% to 148.82, giving back part of Tuesday’s nearly 1% surge.
AUD/USD moved up 0.1% to 0.6521, while USD/CNY ticked 0.1% higher to 7.1770, reflecting cautious optimism among traders in the region.
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.