U.S. Dollar Steadies After Mild Inflation Data

The U.S. dollar steadied in European trade on Thursday, rebounding slightly after dropping to multi-week lows overnight following a milder-than-expected U.S. inflation report. The Dollar Index, which measures the greenback against a basket of six other currencies, traded 0.1% higher at 104.285, recovering from a five-week low reached just below 104.

Wednesday’s consumer price index (CPI) report showed a 0.3% increase in April, below the expected 0.4% gain. This relief to the markets raised expectations that the Federal Reserve might implement two interest rate cuts this year, potentially starting in September. The news also led to U.S. Treasury yields sinking to six-week troughs as traders reassessed the Fed’s likely monetary policy path.

Euro Retreats, Pound Falls

In Europe, the euro retreated slightly against the dollar to 1.0867 after earlier climbing to its highest level since March 21. The European Central Bank (ECB) is anticipated to commence interest rate cuts from a record high in June, with markets foreseeing up to three rate cuts this year. Meanwhile, the pound slipped to 1.2675 against the dollar, relinquishing some gains from the previous session when it surpassed 1.27 for the first time since April 10. The Bank of England is expected to cut rates from a 16-year high this summer, although stronger-than-expected GDP growth may delay this until after the ECB’s moves.

Yen Posts Gains

The yen saw minor gains against the dollar, with USD/JPY falling to 154.64. While benefiting from the dollar’s weakness, the yen remained above levels observed earlier in May, when the Japanese government was suspected of intervening in currency markets.