Dollar treads water ahead of CPI, tariffs remain in focus

Published 01/13/2025, 08:42 PM
Updated 01/14/2025, 05:06 PM
© Reuters. FILE PHOTO: A trader counts U.S. dollar banknotes at a currency exchange booth in Peshawar, Pakistan January 25, 2023. REUTERS/Fayaz Aziz/File Photo

By Laura Matthews

(Reuters) -The dollar weakened against the euro on Tuesday but stayed near its highest level in more than two years as cooler-than-expected inflation data following last week's strong jobs report made it hard to project the Federal Reserve's next moves on interest rates.

Data showed U.S. producer prices increased moderately in December. Investors had already started to scale back bets on rate cuts as potential U.S. tariffs remained in the spotlight.

The greenback pared gains later in the session as traders cautiously awaited Wednesday's consumer price index report. Investors have been closely watching economic data to see if it supports the Fed's cautious stance on rates.

"It's possible that traders are hedging the other side of the market now before CPI tomorrow, so we're seeing some pre-release volatility that's keeping the dollar a touch depressed," said Helen Given, associate director of trading at Monex USA in Washington. "Tariff stories are the primary driver, it appears, for price action today."

Traders are pricing the first rate cut in September, but less than the 50 basis points the Fed projected in December.

With President-elect Donald Trump set to begin a second term next week, the focus has been on his policies that analysts expect will boost growth and price pressures.

The threat of tariffs along with fewer Fed rate cuts priced in has lifted Treasury yields and supported the greenback.

However, on Tuesday the market refocused on the chance that U.S. tariffs may be raised gradually, after a Bloomberg report suggested the U.S. could take a measured approach.

Trump's Treasury pick Scott Bessent is expected to keep a leash on U.S. deficits and use tariffs as a negotiating tool, mitigating the expected inflationary impact of the U.S. economic policy.

Brad Bechtel, global head of FX, at Jefferies, said while the CPI report is important, "all eyes (are on) Trump and the new administration."

Still, Matt Weller, head of market research at StoneX, said Wednesday's CPI reading "will ultimately be more significant for the central bank and therefore traders, who will be looking for a corresponding cool reading as a green light to buy up risk assets."

The dollar index, which measures the greenback versus six other currencies, was down 0.14% at 109.25, shy of the 26-month high of 110.17 it reached on Monday. It hit 114.78 in October 2022, its highest since 2002.

The euro was up 0.51% at $1.0297. It touched $1.0177 on Monday, its lowest level since November 2022.

The single currency dropped more than 6% in 2024 as investors fretted about tariff threats and the monetary policy divergence between the Fed and the European Central Bank.

The British pound, down 0.04% at $1.2198 against the dollar, also touched a 2-1/2-month low versus the euro as concerns about Britain's fiscal challenges continued to weigh.

The dollar rose 0.26% against the yen to 157.89, with traders bracing for next week's Bank of Japan policy meeting, for which markets are pricing in 57% chance of a hike.

Some analysts flagged that the most important forex market battleground right now is the dollar/yuan – as the People's Bank of China (PBOC) manages to hold the line even as depreciation pressure intensifies.

The PBOC has unveiled a flurry of measures in recent days to support its weak currency.

The yuan was flat, changing hands at 7.3454 per dollar on Tuesday.

Currency              

bid

prices at

14

January​

08:14

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 109.27 109.42 -0.13% 0.72% 109.76 109.

index 2

Euro/Doll 1.0297 1.0245 0.51% -0.54% $1.0306 $1.0

ar 239

Dollar/Ye 157.91 157.61 0.18% 0.34% 158.15 157.

n 12

Euro/Yen 162.61​ 161.32 0.8% -0.37% 162.8 161.

2

Dollar/Sw 0.9126 0.917 -0.47% 0.56% 0.9173 0.91

iss 24

Sterling/ 1.2195 1.2203 -0.06% -2.49% $1.2251 $1.2

Dollar 14​

Dollar/Ca 1.4365 1.438 -0.1% -0.1% 1.441 1.43

nadian 44

Aussie/Do 0.6184 0.6176 0.15% -0.03% $0.6207 $0.6

llar 167

Euro/Swis 0.9396 0.9392 0.04% 0.03% 0.9416 0.93

s 78

Euro/Ster 0.844 0.839 0.6% 2.02% 0.845 0.83

ling 86

NZ 0.5596 0.5583 0.25% 0.03% $0.5631 0.55

Dollar/Do 8

llar

Dollar/No 11.3907​ 11.4276 -0.32% 0.22% 11.4415 11.3

rway 74

Euro/Norw 11.7303 11.7006 0.25% -0.33% 11.74 11.6

ay 781

Dollar/Sw 11.1817 11.2445 -0.56% 1.49% 11.2513 11.1

eden 707

© Reuters. FILE PHOTO: A trader counts U.S. dollar banknotes at a currency exchange booth in Peshawar, Pakistan January 25, 2023. REUTERS/Fayaz Aziz/File Photo

Euro/Swed 11.5136 11.523 -0.08% 0.42% 11.5285 11.5

en 001

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.