The U.S. dollar hovered near a one-week peak against the Japanese yen on Thursday, buoyed by stronger-than-expected consumer price data, while the euro found support from news of potential U.S.-Russia talks to end the ongoing war in Ukraine.
The U.S. dollar was slightly lower by 0.06%, trading at 154.33 yen, close to Wednesday’s high of 154.80. This came after U.S. Treasury yields rose following the release of the inflation report. U.S. consumer prices surged 0.5% in January compared to the previous month, well above the expected 0.3% increase. Core prices, excluding volatile items, also rose by 0.4%, signaling persistent inflationary pressures.
Over the past 12 months, overall consumer prices rose by 3.0%, while core inflation climbed 3.3%. This inflation data has prompted market participants to reassess the Federal Reserve’s future policy stance, with expectations for rate cuts this year now slightly reduced to around 28 basis points, compared to 37 basis points prior to the data release.
Tom Nakamura, currency strategist at AGF Investments, noted, “The Fed now has strong justification to maintain a hold on rates, allowing them time to evaluate the impact of new policies.” These include potential tariffs and changes in immigration, taxes, and regulation that could influence the broader economy.
Fed Chair Jerome Powell, speaking at a congressional hearing on Wednesday, reiterated that the central bank is not in a rush to cut rates. The market will be closely watching the release of the U.S. producer price index later today, as it could offer further clues about the trajectory of the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, due on February 28.
Meanwhile, the euro edged up 0.14% to $1.0398, strengthened by President Trump’s directive for U.S. officials to begin negotiations with Russia to find a resolution to the war in Ukraine. The Russian ruble surged overnight to a four-and-a-half-month high against the dollar.
The British pound remained steady at $1.2456, posting a modest gain of 0.09% on the day.
The U.S. dollar index, which measures the greenback against a basket of currencies, edged down 0.03% to 107.88, after briefly reaching a one-week high of 108.52 in the previous session.
AGF’s Nakamura observed, “While a less dovish Fed may provide some support for the U.S. dollar, market focus in the short term is on the evolving policy mix from Washington.”
Concerns surrounding tariffs have also been a key factor influencing the currency markets. President Trump’s tariff policies have caused volatility, with the recent announcement of new 25% tariffs on steel and aluminum imports. Traders are closely watching the unfolding impact of these measures, with some speculating that the tariffs could ultimately benefit the dollar.
In addition, the U.S. imposed a 10% tariff on Chinese goods last week, and retaliatory measures from China took effect this week. The Canadian dollar held steady, while the Mexican peso faced pressure due to the pending 25% tariff on goods from Mexico and Canada, which will not take effect until March 4, allowing time for further negotiations.
The offshore Chinese yuan traded at 7.3105 per dollar, reflecting a slight 0.02% increase during early Asian trading.
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