Dollar Rises Slightly, but Gains Still Uncertain

The U.S. dollar inched slightly higher on Wednesday, buoyed by stronger-than-expected economic data, though lingering uncertainty around trade policies and the growing federal deficit limited further upside.

As of 06:45 ET (10:45 GMT), the U.S. Dollar Index—which measures the greenback against six major currencies—rose 0.1% to 99.500. However, it remains down 8% year-to-date as investors seek alternatives to U.S. assets.

Consumer Confidence Lifts Dollar, But Headwinds Remain

The dollar was supported on Tuesday by robust U.S. consumer confidence data for May. However, a sharp drop in April durable goods orders—the steepest decline in six months—highlighted the economic strain from ongoing tariff volatility.

Concerns over the U.S. fiscal outlook also continue to weigh on sentiment, especially after Moody’s downgraded the U.S. sovereign credit rating on May 16.

“A more conciliatory tone from President Trump towards the EU, along with reports of internal EU pressure for a quick trade deal, helped fuel a short squeeze in the dollar,” analysts at ING noted.

Markets are now awaiting the minutes from the Federal Reserve’s May meeting, due later Wednesday, for insights into the central bank’s policy direction amid economic uncertainty.

Minneapolis Fed President Neel Kashkari on Tuesday advocated for holding rates steady until the inflationary effects of tariffs become clearer, cautioning against dismissing these supply-side shocks.

“Markets will be watching for any clues on the Fed’s view regarding the transitory nature of tariff-induced inflation,” ING added.

Euro Gains as Markets Eye ECB

The euro edged up, with EUR/USD rising 0.1% to 1.1334, rebounding slightly after a 0.5% decline on Tuesday. French GDP grew by 0.1% in Q1, confirming preliminary estimates, while German unemployment rose more than expected in May, nearing 3 million for the first time in a decade.

Attention is turning to the European Central Bank meeting on June 5, with expectations of another rate cut—likely trimming the deposit rate from 2.25% to 2.00%, marking the ECB’s eighth consecutive cut.

“EUR/USD has repeatedly found support around 1.130 over the past six weeks,” ING noted. “If U.S. data and Trump continue to deliver surprises, a break below is possible—but we doubt markets are ready to dismiss the USD risk premium, particularly with deficit concerns resurfacing.”

Sterling, Yen, and Others Move Modestly

The British pound rose 0.1% to 1.3516 after data showed U.K. grocery price inflation surged to 4.1% in the four weeks to May 18—the highest rate since February 2023.

In Asia, USD/JPY slipped 0.1% to 144.15. The yen remained steady after a sharp 1% drop on Tuesday, following reports that Japan may scale back issuance of ultra-long-term bonds amid surging yields.

USD/CNY also dipped 0.1% to 7.1912, with muted movement as uncertainty over Trump’s trade stance kept investors cautious.

Elsewhere, NZD/USD rose 0.3% to 0.5972 after the Reserve Bank of New Zealand cut interest rates by 25 basis points as expected but hinted that the easing cycle may be nearing its end.