The U.S. dollar slipped again on Wednesday, extending sharp losses from the previous day. A cooler-than-expected U.S. consumer inflation report strengthened expectations for more interest rate cuts.
At 04:00 ET (08:00 GMT), the Dollar Index—which measures the dollar against six major currencies—dropped 0.3% to 100.560, after falling 0.8% on Tuesday.
Dollar Drops on Weak Inflation Data
Tuesday’s U.S. consumer price index (CPI) showed inflation was weaker than analysts had predicted last month. This eased concerns about the impact of President Trump’s trade tariffs and suggested the Federal Reserve might lower interest rates in the coming months.
The dollar weakened as traders saw this as room for the Fed to cut rates during the summer.
In their last meeting, Fed officials signaled they would wait for clear signs of economic slowdown before reducing rates, aiming to protect their credibility on inflation rather than offering immediate economic support.
“Markets have lowered their expectations for rate cuts since the U.S.-China weekend trade deal,” said analysts at ING. “Only a 50 basis point cut is now expected by the end of the year.”
The analysts added that, with lower inflation risks and modest inflation seen in April, the chances lean toward more dovish Fed policies, which may limit how much the dollar can rebound.
Dollar Jumps on Trade Deal Optimism, Then Falls Back
The dollar index had risen 1% on Monday, hitting a one-month high. This came on optimism that easing U.S.-China trade tensions, after a new trade deal, would help avoid a global recession.
The deal set limits on tariffs, with China’s tariff rate at 30%—lower than expected—reducing uncertainty over the trade war.
While there is little U.S. economic data expected today, all eyes are on Federal Reserve Chair Jerome Powell’s speech at a conference on monetary policy.
Euro Strengthens After Inflation Eases
In Europe, the euro traded 0.3% higher to 1.1216 against the dollar, recovering from a sharp fall earlier in the week.
German inflation slowed to 2.2% in April, matching Spain’s inflation rate. This suggests the European Central Bank (ECB) could cut interest rates again in June.
ECB policymaker Francois Villeroy de Galhau told a French newspaper that inflation is unlikely to rise soon. He added that while U.S. protectionism might restart inflation in the U.S., Europe should remain stable and could see another rate cut by summer.
Sterling Holds Ground Despite Weak UK Labor Data
The British pound rose 0.2% to 1.3335 against the dollar. Sterling stayed firm even as data showed a slight cooling in the UK labor market.
“Wage growth remains too strong for the Bank of England to consider faster monetary easing,” ING said.
Bank of England policymaker Catherine Mann noted her decision last week to keep borrowing costs steady was due to the UK labor market’s surprising strength.
Japanese Inflation Rises, Pressuring Yen
In Asia, the dollar traded 0.6% lower against the Japanese yen at 146.62. Japan’s wholesale inflation rose to 4.0% in April, signaling ongoing price pressure. This is likely to push the Bank of Japan toward more interest rate hikes.
The dollar edged 0.1% higher against the Chinese yuan, supported by easing trade tensions between Washington and Beijing. The USD/CNY rate stood at 7.2118.
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