Investing.com – The US dollar fell on Tuesday on uncertainty over Trump’s tariff policies, but remained near a two-year high ahead of the release of the first of the week’s key inflation data.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.4% lower at 109.325 after rising to a 26-month high on Monday .
The dollar is retreating from highs
The dollar fell from its highest level on Tuesday after a Bloomberg report suggested the Trump administration could take a gradual approach to tariffs.
The dollar got a boost earlier this year after the president-elect pledged to impose steep tariffs on several countries from “day one” of his term, including a 60% levy on China.
That said, the dollar remains high after a strong report on Friday reinforced support for the US central bank’s cautious stance on further monetary policy easing this year.
The number of expected rate cuts for 2025 was cut at the December meeting from four to two in September, with policy members concerned about inflation remaining above target.
The focus this week is now on the US report due out on Wednesday, preceded by later this session.
“This week’s US inflation data could potentially reinforce the dollar’s strong momentum and cast further doubt on whether the Fed should cut spending at all,” ING analysts said in a note.
“Tomorrow’s CPI should have the biggest impact on the market, but today’s PPI is still highly relevant, especially since many of the PPI components contribute to the Fed’s preferred inflation measure – the core PCE.”
Sterling under pressure
In Europe, it traded 0.1% higher at 1.2214, after falling to 1.21 on Monday, its lowest level since November 2023.
The pound has struggled this year as rising government bond yields, and therefore higher borrowing costs, have raised fears that the new Labor government could be forced to rein in spending or raise taxes to to comply with its fiscal rules, which could potentially put pressure on future growth.
There’s a plethora of UK economic data to study this week, starting with the latest on Wednesday.
“Gilts have remained under pressure due to the underperformance of global bonds. There is now a tangible risk that 10-year yields will trade above 4.90% before tomorrow morning’s UK CPI print. If this turns out to be warmer than expected, selling pressure could increase to around 5.0% and possibly even further,” ING said.
rose 0.1% to 1.0255, just above the more than two-year low of 1.0177 seen on Monday.
The single currency has struggled early this year, after falling more than 6% in 2024, as investors worry about weak economic growth in the region and tariff threats.
There will be sentiment data from both and to be processed later in the session.
Rates are widely expected to fall by around 100 basis points in 2025, with most cuts taking place in the first half of the year.
BOJ meeting threatens to be big
In Asia, yields rose 0.2% to 157.77 after BOJ Deputy Governor Ryozo Himino said rates would be discussed at a meeting next week on whether to raise rates.
Speculation about more rate hikes from the BOJ has increased in recent weeks, driven by strong wage growth and household spending data. Japanese inflation has also been consistently above the BOJ’s annual target of 2% in recent months.
traded largely unchanged at 7.3311, remaining near the highest level since September 2023, amid increased focus on more stimulus from Beijing.
The People’s Bank of China will also decide on its benchmark this week.
