US Dollar Holds Near Weekly High Following Inflation Data, Ukraine News
The US dollar steadied near its one-week peak against the Japanese yen after hotter-than-anticipated consumer price data, while the euro rose on news of impending talks between Washington and Russia to resolve the Ukraine conflict.
The dollar declined 0.06% to 154.33 versus the yen, close to Wednesday's high of 154.80 reached as US Treasury yields surged in response to the inflation report.
US consumer prices surged by the most in nearly 18 months, increasing by 0.5% in January compared to the previous month. The core index rose by 0.4%, exceeding projections of 0.3% for both measurements. Headline consumer price inflation reached 3.0% annually, while core prices increased at an annual rate of 3.3%.
Market participants are raising their bets that the Federal Reserve will maintain higher interest rates for an extended period, pricing in roughly 28 basis points of rate reductions this year, down from around 37 basis points prior to the data.
"The Fed now has ample justification to remain on hold and observe the implementation and impact of government policies," said Tom Nakamura, currency strategist and co-head of fixed income at AGF Investments.
Aside from tariffs, US policies related to immigration, taxation, and regulation may also influence the economy's trajectory.
Fed Chair Jerome Powell reiterated at his second congressional hearing this week that the central bank is in no rush to lower rates. The US producer price index release later on Thursday will provide insights into the potential direction of the Personal Consumption Expenditures price index, the Fed's preferred inflation measure, when it is released on February 28.
The euro gained 0.14% to $1.0398, bolstered by Trump's authorization of discussions aimed at ending the Ukraine conflict. Overnight, the Russian ruble surged to a 4-1/2-month high against the dollar.
Sterling was valued at $1.2456, up 0.09% on the day. The dollar index, which measures the greenback's value against a basket of peers including the yen and euro, dipped 0.03% to 107.88 after hitting a one-week high of 108.52 in the previous session.
"A less dovish Fed is marginally supportive for the US dollar, but markets will primarily focus on the policy mix emanating from Washington in the near term," said Nakamura of AGF.
Traders have been attempting to determine the implications of Trump's threat after a turbulent period dominated by tariff news. Certain market participants anticipate that tariffs will benefit the dollar.
On Monday, Washington imposed new 25% tariffs on all steel and aluminum imports into the United States, sparking concern among trading partners. The Canadian dollar remained stable, while the Mexican peso faced some pressure, with a 25% tariff on goods from Mexico and Canada temporarily delayed until March 4th for negotiations.
Trump imposed an additional 10% tariff on Chinese goods last week, and China has retaliated with countermeasures this week. In early Asian trading, the offshore yuan traded at 7.3105 yuan per dollar, an increase of around 0.02%.