The U.S. dollar steadied in early Wednesday trading after experiencing its sharpest single-day drop in over three weeks, as cooler-than-expected consumer inflation data supported growing expectations for Federal Reserve rate cuts. At the same time, a de-escalation in global trade tensions offered a more optimistic backdrop for markets.
According to the U.S. Labor Department, the consumer price index (CPI) rose 0.2% in April, falling short of the 0.3% forecast by economists surveyed by Reuters. This followed a 0.1% decline in March, suggesting a more moderate inflation trajectory in the near term.
However, inflationary pressures could resurface in the coming months as U.S. tariffs drive up prices on imported goods. Nevertheless, recent developments in global trade—namely an agreement with the United Kingdom and a 90-day truce with China after high-level talks—have improved sentiment around the U.S. trade outlook.
President Donald Trump has also hinted at the possibility of upcoming trade deals with India, Japan, and South Korea, signaling further progress in easing international trade frictions.
As of 00:42 GMT, the U.S. dollar index, which tracks the greenback against a basket of six major currencies, was flat at 100.94. This came after a 0.8% drop on Tuesday, partially reversing Monday’s 1% surge that pushed the index to a one-month high amid optimism over U.S.-China trade de-escalation.
(USD/JPY) The dollar was steady at 147.45 yen, while the euro and British pound were little changed, trading at $1.1188 and $1.3311, respectively. Against the Swiss franc, the dollar held at 0.8390, and remained at 7.1928 yuan in offshore markets after briefly touching a six-month low of 7.1791 yuan the previous day.
“Despite the overnight dip in the USD, we see further upside in the near term as markets reassess economic prospects in light of the temporary U.S.-China trade deal,” analysts at Commonwealth Bank of Australia wrote in a note to clients. They projected a 2-3% rise in the dollar index over the coming weeks.
Still, the analysts cautioned against expecting a full rebound to early-year levels, when the index hovered around 108.50. “Erratic policymaking in the U.S. has likely inflicted lasting damage on the dollar’s reputation as a safe-haven asset,” the note added.
Since April 2—when President Trump announced his so-called “Liberation Day” tariffs—the dollar has fallen roughly 3%, coinciding with a retreat by foreign investors from U.S. equities and fixed income markets.
Reflecting the broader shift in sentiment, Bank of America’s global fund manager survey released Tuesday showed that global asset managers held their largest underweight position in the dollar in 19 years during May.
Meanwhile, the Federal Reserve has maintained a cautious stance, awaiting clearer signals on the economic fallout from trade policy before committing to further interest rate cuts.
Market pricing currently reflects expectations of around 50 basis points of rate cuts before year-end, according to LSEG data. The next 25-basis-point move is widely anticipated in September.
