The U.S. dollar firmed slightly on Thursday as traders positioned themselves ahead of a closely watched inflation release, while escalating U.S.-China trade tensions and fresh sanctions on Russia added to safe-haven demand.
At 03:50 ET (07:50 GMT), the U.S. Dollar Index rose 0.1% to 98.805, recovering some ground after notable losses the previous week.
Safe-haven flows support the dollar
The greenback advanced modestly as concerns over the fragile U.S.-China relationship weighed on sentiment. Investors remain on edge over the risk of a trade war between the two largest economies in the world.
According to Reuters, Trump’s administration is considering new restrictions on a broad range of high-tech exports to China — including laptops, jet engines and other sensitive technologies — in response to Beijing’s latest rare earth export controls.
U.S. President Donald Trump and Chinese President Xi Jinping are expected to meet in South Korea next week, though Trump acknowledged that “a meeting may not take place” despite earlier optimism.
Separately, Trump imposed sanctions on Lukoil and Rosneft, citing Moscow’s “lack of serious commitment to a peace process to end the war in Ukraine.”
The announcement pushed oil prices higher, which tends to support the dollar since crude is priced in the U.S. currency.
Still, as ING analyst Francesco Pesole noted, “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.”
CPI data in focus
With the U.S. government shutdown dragging on, attention is turning to Friday’s September Consumer Price Index release, which could provide a fresh catalyst for currency markets after being delayed for over a week.
“We reiterate our view that the dollar’s rebound is getting tired and probably requires some hawkish repricing to keep going,” Pesole said. “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 weakens slightly
The euro slipped, with EUR/USD down 0.2% to 1.1592, after the White House reiterated its decision to sanction Russia’s biggest oil companies, 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.
Next week’s European Central Bank policy meeting is expected to be uneventful, with inflation close to target and eurozone growth relatively steady.
The pound also edged lower, with GBP/USD dipping to 1.3351 after Wednesday’s data showed inflation held steady at 3.8% in September, below the 4.0% economists had expected.
Yen under pressure, commodity currencies gain
USD/JPY climbed 0.4% to 152.58, its highest level in more than a week, as the yen weakened following the appointment of Sanae Takaichi as Japan’s new prime minister. Seen as fiscally dovish, she is expected to loosen fiscal and monetary policy, weighing further on the currency.
The Bank of Japan has nonetheless signaled that rate hikes could continue if growth and inflation evolve as expected. September CPI figures are due Friday, ahead of the central bank’s late-October meeting.
Meanwhile, USD/CNY edged slightly lower to 7.1229 after strong midpoint fixes by the People’s Bank of China. U.S.-China trade frictions resurfaced this week after reports that Washington is weighing new export restrictions on technology in response to Beijing’s rare earth measures.
Commodity-linked currencies gained, with AUD/USD up 0.3% to 0.6506 and NZD/USD rising 0.1% to 0.5746.