Dollar Falls Slightly from Highs as Markets Eye U.S. CPI Report
The U.S. dollar edged lower on Tuesday but remained close to recent highs, buoyed by ongoing optimism following a trade agreement between the U.S. and China.
As of 04:30 ET (08:30 GMT), the U.S. Dollar Index — which measures the greenback against a basket of six major currencies — dipped 0.2% to 101.410, after surging roughly 1.6% on Monday to hit a one-month peak.
Markets Pause Ahead of Key Inflation Data
Investor sentiment steadied following the weekend’s trade talks in Geneva, where Washington and Beijing agreed to a 90-day halt on mutual tariffs. The agreement has sparked hopes that escalating trade tensions between the world’s two largest economies might not culminate in a tariff-induced recession.
Under the deal, U.S. tariffs remain capped, while China’s rate is set at 30% — a figure notably lower than anticipated — helping reduce uncertainty and bringing some clarity to the outlook for global trade.
Although the dollar rallied on the back of the trade breakthrough, markets are now shifting focus to the upcoming release of the April U.S. Consumer Price Index (CPI), a key gauge of inflation. Expectations are for a 2.4% year-over-year rise, unchanged from March, with a monthly gain of 0.3%. The core CPI, which excludes food and energy, is forecast to rise 0.3% month-over-month and 2.8% annually.
Analysts warn that Trump’s tariff policies could rekindle inflationary pressures, and recent consumer surveys suggest households are bracing for higher prices ahead.
“April core CPI is expected to remain sticky at 0.3% month-on-month, reinforcing the idea that the Fed is in no rush to begin cutting rates,” said analysts at ING. “Markets have now pushed the expected terminal rate for this cycle to 3.50%, up from 3.00%, and we still anticipate a potential 50 basis point cut in September to initiate a new easing cycle.”
Euro Edges Higher After Sharp Drop
The euro recovered modestly, with EUR/USD rising 0.2% to 1.1107, after falling 1.4% the previous day. A possible rebound could be on the horizon, with attention turning to the May ZEW investor sentiment survey from Germany, expected to show improvement after recent declines driven by trade fears.
“EUR/USD appears to have completed the first leg of a longer-term uptrend,” said ING. “We anticipate dip-buying interest around the 1.1030–1.1050 zone, with downside risk toward 1.0850. That said, this pullback makes our year-end target of 1.13 seem more reasonable — perhaps even conservative.”
Pound Holds Up Despite Labor Market Weakness
The British pound also gained ground, with GBP/USD up 0.3% to 1.3211, despite signs of a softening labor market.
U.K. data released earlier showed employment falling, wage growth slowing, and the unemployment rate rising to 4.5% in the three months through March, up from 4.4% previously.
Asian Currencies Rebound as Trade Fears Ease
In Asia, USD/JPY fell 0.4% to 147.87, with the yen regaining some lost ground after Monday’s risk-driven selloff. The Chinese yuan also ticked higher, with USD/CNY down 0.1% to 7.1995, supported by easing tensions between Beijing and Washington.
