Investing.com – The U.S. dollar fell on Tuesday amid uncertainty over Trump’s tariff policies, but remained near two-year highs ahead of the release of the first key inflation data.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the dollar against a basket of six other currencies, fell 0.4% to 109.325, after hitting a 26-month high on Monday.
The dollar is retreating from the highs
The dollar fell from its highs on Tuesday after a Bloomberg report that suggested the Trump administration may take a gradual approach to tariffs.
The dollar appreciated earlier this year after the newly elected president announced he would impose high tariffs on several countries, including a 60% tariff on China, from “day one” of his term.
That said, the dollar remains elevated after a robust report on Friday that added support for the U.S. central bank’s cautious stance on further monetary easing this year.
It reduced the number of rate cuts projected for 2025 to two at its December meeting from four in September, with policy members concerned that inflation would remain above target.
This week’s attention will now turn to the US report, due for release on Wednesday, ahead of the later session.
“This week’s U.S. inflation data has the potential to reinforce strong dollar momentum and raise further doubts about whether the Fed should cut 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 very important, especially since many components of the PPI influence the Fed’s preferred measure of inflation, the core PCE.”
Sterling under pressure
In Europe, rates rose 0.1% to 1.2214, after Monday’s decline to 1.21, the lowest since November 2023.
The pound has struggled this year as rising government bond yields and therefore higher borrowing costs have raised concerns that a recent Labor government may have to cut spending or raise taxes to meet its fiscal rules, potentially hurting on future economic growth.
There’s plenty of UK economic data to study this week, starting with the latest data on Wednesday.
“Gilts remain under pressure due to faint global bond performance. Currently, there is a physical risk that before tomorrow morning’s publication of the British CPI, the yield on 10-year bonds will exceed 4.90%. If prices are higher than expected, selling pressure could enhance to 5.0% or even further,” ING said.
rose 0.1% to 1.0255, slightly above, hovering near the more than two-year low of 1.0177 recorded on Monday.
The single currency struggled at the start of the year after falling more than 6% in 2024 as investors worried about faint economic growth in the region and tariff threats.
Later in the session, sentiment data from both sides and the group will be sent for digestion.
Interest rates are widely expected to be cut by around 100 basis points in 2025, with most of the reductions occurring in the first half of the year.
The BOJ meeting promises to be a huge one
In Asia, it rose 0.2% to 157.77 after BOJ Vice President Ryozo Himino said a meeting next week would debate whether to raise interest rates.
Speculation about further interest rate increases by the BOJ has intensified in recent weeks amid robust wage growth and household spending data. Inflation in Japan has also consistently remained above the BoJ’s annual target of 2% in recent months.
it was largely unchanged at 7.3311, remaining close to its highest level since September 2023 amid increased pressure for further stimulus measures from Beijing.
The People’s Bank of China will also make a decision on its benchmark this week.
