The U.S. dollar extended its losses on Wednesday, following its sharpest drop in over three weeks the night before, after weaker-than-expected U.S. consumer inflation data fueled expectations that the Federal Reserve might resume interest rate cuts. Meanwhile, global trade tensions appear to be easing.
U.S. data showed that the Consumer Price Index (CPI) rose by just 0.2% in April, below the expected 0.3% increase, following a 0.1% decline in March.
In response, the euro climbed 0.5% to $1.1240, the British pound rose 0.34% to $1.2249, and the dollar fell 0.77% against the Japanese yen to 146.33 yen.
The U.S. Dollar Index, which tracks the dollar against six major currencies, dropped by 0.45% to 100 points.
Francesco Pesole, currency strategist at ING, wrote in a note: “The dollar didn’t hold onto the gains made after the trade agreements,” adding that weak inflation data revealed a strategic preference to sell the dollar in anticipation of further economic softening.
The dollar index had gained 1% on Monday and reached a one-month high on hopes that reduced trade tensions between the U.S. and China might help avert a global recession.
However, it fell 0.8% on Tuesday after the inflation report and is now down about 3% from its level on April 2, when former President Donald Trump announced new tariffs on what he called "Liberation Day," prompting foreign investors to pull out of U.S. markets.
Trump told Fox News he wouldn’t rule out direct negotiations with Chinese President Xi Jinping on the final details of a trade deal.
Trade understandings between the U.S. and some Asian countries could have broad implications for currency markets, especially those accused of deliberately keeping their currencies weak.
The South Korean won strengthened after a government official said Deputy Finance Minister Choi had met with Robert Kaproth from the U.S. Treasury on May 5 to discuss currency market conditions. The dollar fell 1.2% against the won to 1,398.
Against the Chinese yuan, the dollar rose 0.14% to 7.2067 in offshore trading after hitting a six-month low of 7.1791 on Tuesday.
Investors are now awaiting Thursday’s U.S. retail sales and Producer Price Index (PPI) data, as well as a speech by Federal Reserve Chair Jerome Powell.
Any clear signals from the U.S. administration regarding the direction of trade policy could influence the Fed’s decision to resume rate cuts. According to LSEG data, markets are pricing in about 54 basis points of rate cuts by year-end, with the first 25-basis-point cut expected in September.
— Reuters
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The U.S. dollar extended its losses on Wednesday, following its sharpest drop in over three weeks the night before, after weaker-than-expected U.S. consumer inflation data fueled expectations that the Federal Reserve might resume interest rate cuts. Meanwhile, global trade tensions appear to be easing.
U.S. data showed that the Consumer Price Index (CPI) rose by just 0.2% in April, below the expected 0.3% increase, following a 0.1% decline in March.
In response, the euro climbed 0.5% to $1.1240, the British pound rose 0.34% to $1.2249, and the dollar fell 0.77% against the Japanese yen to 146.33 yen.
The U.S. Dollar Index, which tracks the dollar against six major currencies, dropped by 0.45% to 100 points.
Francesco Pesole, currency strategist at ING, wrote in a note: “The dollar didn’t hold onto the gains made after the trade agreements,” adding that weak inflation data revealed a strategic preference to sell the dollar in anticipation of further economic softening.
The dollar index had gained 1% on Monday and reached a one-month high on hopes that reduced trade tensions between the U.S. and China might help avert a global recession.
However, it fell 0.8% on Tuesday after the inflation report and is now down about 3% from its level on April 2, when former President Donald Trump announced new tariffs on what he called "Liberation Day," prompting foreign investors to pull out of U.S. markets.
Trump told Fox News he wouldn’t rule out direct negotiations with Chinese President Xi Jinping on the final details of a trade deal.
Trade understandings between the U.S. and some Asian countries could have broad implications for currency markets, especially those accused of deliberately keeping their currencies weak.
The South Korean won strengthened after a government official said Deputy Finance Minister Choi had met with Robert Kaproth from the U.S. Treasury on May 5 to discuss currency market conditions. The dollar fell 1.2% against the won to 1,398.
Against the Chinese yuan, the dollar rose 0.14% to 7.2067 in offshore trading after hitting a six-month low of 7.1791 on Tuesday.
Investors are now awaiting Thursday’s U.S. retail sales and Producer Price Index (PPI) data, as well as a speech by Federal Reserve Chair Jerome Powell.
Any clear signals from the U.S. administration regarding the direction of trade policy could influence the Fed’s decision to resume rate cuts. According to LSEG data, markets are pricing in about 54 basis points of rate cuts by year-end, with the first 25-basis-point cut expected in September.
— Reuters
