On Wednesday, the U.S. dollar held its ground following recent losses as investors awaited fresh inflation data, with the Japanese yen continuing its decline to reach the lowest value observed in 18 months.
By 04:30 Eastern Time (09:30 GMT), the Dollar Index, which measures the greenback's performance against a basket of six major currencies, was steady at 98.910. This followed a soft start to the week, where the dollar had weakened.
Earlier in the week, the U.S. currency experienced a brief dip after consumer price figures suggested possible scope for the Federal Reserve to ease interest rates. December's core consumer price index (CPI) increased by 0.2%, translating to a 2.6% rise over the past year, slightly below market expectations.
Nonetheless, analysts at ING observed that the brief dollar weakness reinforced their positive short-term outlook. Despite the softer CPI number, pricing in Fed policy remained largely intact, and the currency quickly regained losses.
Investors anticipate additional inflation-related information on Wednesday, including October's producer price index and November's retail sales figures. These indicators are expected to further clarify inflation dynamics.
The dollar also gained psychological support following public backing of Federal Reserve Chair Jerome Powell by central bank officials worldwide. This came amid concerns regarding U.S. Treasury investigations into Powell's prior congressional testimony about renovations at the Fed’s headquarters, which some fear could threaten the Federal Reserve's autonomy.
ING analysts noted that Powell's perceived resolve to defend the Fed’s independence may ultimately reinforce a tighter monetary stance, potentially bolstering the dollar's strength.
Market participants also await a pending U.S. Supreme Court ruling regarding the legality of former President Trump's tariff policies, which could be announced imminently.
European Currencies and Greenland Discussions
In European currency markets, the euro edged up by 0.1% against the dollar, trading at 1.1650. This came ahead of discussions involving U.S., Danish, and Greenlandic officials about the future development of the mineral-rich Greenland territory.
ING highlighted that U.S. threats related to Greenland have had limited impact on currency markets, implying that any resolution might not drastically alter current valuations. Positive outcomes from these talks might ease geopolitical uncertainties perceived to weigh on European currencies.
While a cooperative result could temper the downward trend of the EUR/USD, ING maintains a near-term target of 1.1600.
The British pound saw a modest 0.2% rise against the dollar to 1.3451.
Japanese Yen's Slide and Domestic Politics
In Asia, USD/JPY rose 0.1% to 159.15, earlier touching the highest level since June 2024, as the yen weakened.
Reports indicate that Japan’s Prime Minister Sanae Takaichi plans to advise her Cabinet to dissolve parliament on Wednesday, potentially scheduling a snap lower-house election for February 8.
Market attention has focused on Takaichi’s proposal to implement expansionary fiscal measures, including sizable stimulus packages intended to stimulate economic growth and address deflation.
Such plans could exert downward pressure on the yen by increasing government debt burdens and postponing tighter monetary policy by the Bank of Japan. This dynamic, often referred to as the "Takaichi trade," has contributed to recent yen depreciation.
Other Currency Movements
The Chinese yuan moved slightly lower, with USD/CNY decreasing 0.1% to 6.9736. This followed December trade data revealing a strong surplus: exports outperformed expectations and imports grew healthily, signaling robust external demand alongside signs of revived domestic consumption.
For the entire year 2025, China posted a record trade surplus of $1.25 trillion, as disruptions in exports to the United States were largely counterbalanced by demand from other regions.
The Australian dollar traded largely flat at 0.6688 against the U.S. dollar.