On Wednesday, the United States dollar steadied after facing losses earlier in the week ahead of the release of significant inflation data. Meanwhile, the Japanese yen continued its depreciation, reaching its lowest level in 18 months.
As of 04:30 ET (09:30 GMT), the Dollar Index, which measures the U.S. currency against a group of six major currencies, traded nearly flat at 98.910, following a weak start to the week.
The dollar had dipped briefly on Tuesday after consumer price figures suggested that the Federal Reserve might have further latitude to reduce interest rates. Core Consumer Price Index data for December showed a 0.2% monthly increase, resulting in a 2.6% rise year-on-year, slightly below market estimates.
However, as pointed out by analysts from ING, market behavior after the release actually bolstered short-term optimism on the dollar. Despite the softer inflation readout, expectations for the Fed's policy remained largely unchanged and the dollar promptly regained ground.
Additional inflation-related indicators, including producer price data for October and November retail sales figures, are scheduled for release later Wednesday, which are expected to provide further clarity on economic conditions.
The dollar also gained support following coordinated backing for Federal Reserve Chair Jerome Powell from global central bank officials, which came amidst the Trump administration's threats of criminal charges concerning Powell's testimony about renovations at the Fed's headquarters. This development stirred concerns about the central bank’s independence.
ING’s analysts noted that the dollar might ultimately benefit, as Powell could be perceived as adopting a firmer hawkish stance to protect the Fed’s autonomy.
Market participants are also awaiting a Supreme Court ruling on the validity of tariff policies introduced during the Trump administration, which may be announced as soon as Wednesday. The decision is anticipated to influence trade and currency markets.
In the European sector, the euro edged up by 0.1% to trade at 1.1650 against the dollar, ahead of trilateral discussions between U.S., Danish, and Greenlandic officials regarding the mineral-rich isle’s future.
ING analysts remarked that past U.S. concerns about Greenland have had minimal impact on market pricing, suggesting little risk premium has been priced in that would unwind even if talks yield cooperative results. Progress in these talks could alleviate a significant geopolitical uncertainty for European currencies.
Nevertheless, while positive headlines might temper the euro’s decline against the dollar, ING analysts maintain a target of 1.1600 in the near term.
The British pound advanced 0.2% to 1.3451 versus the dollar.
Focus in Asia turned to the yen, which weakened further, with USD/JPY rising 0.1% to 159.15. The currency pair earlier touched its highest level since June 2024.
Reports indicate that Japanese Prime Minister Sanae Takaichi plans to announce plans to dissolve parliament, potentially triggering a snap lower-house election on February 8. Investors are pricing in Takaichi’s proposed expansionary fiscal measures, including substantial stimulus aimed at economic growth and combating deflation.
This fiscal approach, often referred to as the “Takaichi trade,” is viewed as likely to increase Japan’s government debt and delay tighter monetary policy from the Bank of Japan, thereby exerting additional pressure on the yen.
Meanwhile, the Chinese yuan slightly decreased by 0.1% to 6.9736 against the dollar following the release of December’s trade statistics, which showed a notably strong surplus. Exports surpassed expectations and imports rose steadily, pointing to continued robust external demand and an improving domestic consumption environment.
For the entirety of 2025, China recorded a record trade surplus of $1.25 trillion, reflecting resilient global demand outside the United States.
The Australian dollar maintained its previous level, trading near 0.6688 against the USD.