Dollar Steadies Post-Cool Inflation; Sterling Slides on Weak Growth Data
The U.S. dollar stabilized on Thursday following losses in the previous session due to softer inflation data, while the British pound edged lower after disappointing growth figures.
As of 04:45 ET (09:45 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, rose slightly to 108.950, breaking a three-day losing streak.
Dollar Remains Firm
The dollar weakened on Wednesday after the release of a subdued Consumer Price Index (CPI) report, which followed a similarly mild Producer Price Index (PPI) reading earlier in the week.
“Global asset markets have enjoyed a positive 24 hours, largely driven by the marginally below-consensus U.S. core CPI reading for December,” analysts at ING noted in a report.
However, they cautioned that “sticky headline and core inflation near 3% year-on-year still raises doubts about the Federal Reserve’s ability to cut rates this year, with only 36 basis points of easing priced for 2025.”
The greenback also remained buoyant ahead of Donald Trump’s upcoming inauguration, with his proposed strict tariffs on both allies and adversaries fueling inflation concerns.
Later in the session, retail sales data is due, but attention is likely to focus on the Senate confirmation hearing of Scott Bessent, Trump’s nominee for U.S. Treasury Secretary.
“He will face questions on the dollar, tariffs, and fiscal policy. We don’t expect him to shift the strong dollar stance just yet,” ING added.
Sterling Falls on Lackluster GDP Data
In Europe, GBP/USD dropped 0.3% to 1.2199 after data showed that the U.K. economy barely returned to growth in November. Official figures indicated gross domestic product grew by just 0.1% from October, the first monthly increase since August, but below the 0.2% forecast.
With this weak growth, markets are now widely anticipating the Bank of England to cut interest rates in February, with two additional cuts expected in 2025.
Euro Edges Lower Amid Weak Inflation
EUR/USD slipped to 1.0290 after inflation data from Germany and Italy confirmed subdued price growth in December.
“Yesterday presented a good opportunity for EUR/USD to rally,” ING commented. “Two-year rate spreads narrowed by 5 basis points after the 0.2% core U.S. CPI reading. However, EUR/USD struggled to sustain a rally to 1.0350. This reflects a conviction that the eurozone will underperform this year due to weak growth and leadership.”
The European Central Bank is expected to cut interest rates by approximately 100 basis points in 2025, more than the Federal Reserve, indicating further weakness ahead for the euro.
Yen Strengthens Further
In Asia, USD/JPY fell 0.4% to 155.75, hitting its lowest level since mid-December.
The yen has gained momentum this week after Bank of Japan (BOJ) Governor Kazuo Ueda hinted at a potential rate hike in the central bank’s upcoming meeting, citing steady inflation and wage growth.
Meanwhile, USD/CNY remained largely flat at 7.3317, near a 16-month high, as the market looks ahead to China’s fourth-quarter GDP data due on Friday.
