On Wednesday, the US dollar rose to 154.44 against the yen, reaching its highest point in a week. This happened after the US January Consumer Price Index (CPI) data exceeded economists' expectations, fueling market expectations that the Federal Reserve will maintain high interest rates.
According to the data, the US January CPI rose by 0.5% month-on-month, higher than the expected 0.3%. The core CPI also increased by 0.4%, again surpassing expectations. The overall CPI rose by 3.0% year-on-year, while the core CPI rose by 3.3%, both exceeding market expectations. This indicates that US inflation remains elevated, which may force the Federal Reserve to keep interest rates high.
ForexLive Chief Currency Analyst Adam Button noted that although there might be some one-off factors affecting January's inflation data, the Federal Reserve has made it clear that it will not cut rates until inflation approaches 2%. The futures market's rate expectations have also changed, now anticipating only a 25 basis point rate cut this year by the Federal Reserve, compared to the previous expectation of 37 basis points.
The US Dollar Index also rose by 0.02%, reporting 107.95, although it briefly hit a one-week high of 108.52. As the market gradually digests the inflation report, the dollar's gains have narrowed. Jefferies Chief US Economist Thomas Simons stated in a report that the January inflation data might be peculiar and is unlikely to continue in the coming months.
In Europe, European Central Bank Governing Council Member Nagel indicated that the ECB should gradually ease policy rather than aiming for a "neutral" interest rate level, which caused a slight rise in the euro against the dollar. The euro rose by 0.27% in late New York trading, reporting $1.0388.
Markets are also focused on potential tariff policies by the Trump administration. ING Chief International Economist James Knightley warned that potential tariffs might further increase inflationary pressures. The White House stated that it would announce reciprocal tariffs on all countries that impose tariffs on US imports this Thursday, and the Trump administration also plans to raise steel and aluminum import tariffs to 25% starting March 4.
