Investing.com – The US dollar fell on Tuesday amid uncertainty over Trump's tariff policy, but remained near two-year highs ahead of the release of the first major 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 climbed to a 26-month high on Monday.
Dollar is going back from highs
The dollar slipped from its highs on Tuesday after a Bloomberg report suggested the Trump administration may take a gradual approach to tariffs.
The dollar had rallied earlier this year after the President-elect promised to impose steep tariffs on several countries, including a 60% duty on China, from “day one” of his term.
That said, the greenback remains elevated after a strong report on Friday reinforced support for the US central bank's cautious stance towards further monetary policy easing this year.
The number of rate cuts expected for 2025 was cut to two at their December meeting, from four in September, with policymakers concerned about inflation still above target.
The focus this week is now on the US report due on Wednesday, before the end of this session.
“This week's US inflation data could reinforce the dollar's strong momentum and raise further doubts about whether the Fed will need to cut at all,” analysts at ING said in a note.
“Tomorrow's CPI should have the biggest market impact, but today's PPI is still very relevant, especially as many of the PPI components feed into the main inflation measure the Fed prefers—the core PCE.”
Sterling under pressure
In Europe, they traded 0.1% higher to 1.2214, after falling to 1.21 on Monday, the lowest level since November 2023.
The pound has struggled this year as rising gilt yields, and therefore higher borrowing costs, have fueled fears that the new Labor government may have to cut spending or raise taxes to meet their fiscal regulations, which could put pressure on future growth.
There is plenty of UK economic data to scrutinize this week, starting on Wednesday with the latest.
“Gilts have remained under pressure, following the underperformance of global bonds. There is now a significant risk that the 10-year yield will trade above 4.90% before the UK CPI print tomorrow morning. If that comes in hotter than expected, selling pressure can go into the 5.0% handle and possibly beyond,” ING said.
It rose 0.1% to 1.0255, slightly above hoovered near the more than two-year low of 1.0177 seen on Monday.
The single currency has struggled at the start of the year after falling more than 6% in 2024 as investors worry about weak economic growth in the region and threats of tariffs.
Emotion data is due later in the session from both and from the to digest.
The benchmark is expected to cut interest rates by around 100 basis points in 2025, with most of the cuts coming in the first half of the year.
The BOJ meeting is big
In Asia, it climbed 0.2% to 157.77, after BOJ Deputy Governor Ryozo Himino said whether to raise interest rates will be discussed at next week's meeting.
Speculation over more rate hikes by the BOJ has increased in recent weeks, following strong wage growth and household consumption data. Japanese inflation has also remained consistently above the BOJ's annual target of 2% in recent months.
traded largely unchanged at 7.3311, staying close to its highest level since September 2023, amid increased focus on more stimulus measures from Beijing.
The People's Bank of China is also due to decide on its benchmark this week.
