The US Dollar Index continued its decline today, reaching 109.465 with a 0.33% drop following the release of the US Producer Price Index (PPI) data. The data revealed a monthly decline in producer price inflation to 0.20%, contrary to expectations of a 0.40% increase. On an annual basis, the index recorded 3.30%, slightly below the forecasted 3.50%. However, the decline remains limited, as last month's reading was 3.00%, indicating that inflation continues to rise, albeit at a slower-than-expected pace.
The dollar's movements are influenced by inflation indicators, which impact the Federal Reserve's decision on interest rate cuts this year. Investment banks anticipate that the Federal Reserve may not aggressively cut rates as expected last year, given the robust labor market and inflation metrics that resist significant declines.
The US Dollar Declines Amid Uncertainty Over Tariff Policies
The US dollar weakened on Tuesday amid uncertainty regarding Trump administration tariff policies. However, it remained near its two-year highs ahead of the week's first major inflation data release.
At 04:15 Eastern Time (09:15 GMT), the Dollar Index, which measures the greenback against six major currencies, fell 0.4% to 109.325 after reaching a 26-month high on Monday.
Dollar Retreats from Highs
The dollar pulled back on Tuesday after a Bloomberg report suggested that the Trump administration might adopt a gradual approach to imposing tariffs.
Earlier this year, the dollar received a significant boost after President Trump pledged to impose steep tariffs on various countries, including a 60% tariff on China, starting from the "first day" of his term.
Nevertheless, the dollar remains strong, supported by a robust jobs report last Friday, which bolstered expectations for the Federal Reserve to maintain a cautious stance on further monetary policy easing this year.
The Federal Reserve reduced its forecast for rate cuts in 2025 to two, down from four in September, reflecting policymakers' concerns about inflation remaining above target levels.
Key Focus on Upcoming US Inflation Reports
Attention this week is centered on the US Consumer Price Index (CPI) report due Wednesday, preceded by the Producer Price Index data later in this session.
Analysts at ING noted in a memo: "US inflation data this week is likely to reinforce the dollar's strong momentum and raise further doubts about whether the Federal Reserve needs to cut rates at all. While the CPI tomorrow will likely have the biggest market impact, today's PPI remains relevant, as many PPI components feed into the Fed's preferred inflation gauge—Core Personal Consumption Expenditures (PCE)."
Sterling Under Pressure
In Europe, the GBP/USD rose 0.1% to 1.2214 after falling to 1.21 on Monday, its lowest level since November 2023.
The pound has struggled this year, weighed down by rising Treasury yields and borrowing costs, which raised concerns that the new Labour government might need to rein in spending or raise taxes to meet fiscal rules, potentially impacting future growth.
This week will see a slew of UK economic data, starting with the latest consumer price
