Dollar Pauses Tariff-Driven Rally Ahead of U.S. Inflation Data

The U.S. dollar retreated slightly on Wednesday as traders awaited key U.S. inflation data and updates on global trade developments. However, hawkish comments from Federal Reserve Chair Jerome Powell supported the greenback against the yen by driving up U.S. Treasury yields.

Dollar Strengthens Against Yen but Pulls Back Elsewhere

In Asian trading, the dollar climbed 0.7% to 153.56 yen, surpassing its 200-day moving average. However, it saw mild losses against other major currencies, trading at $1.0358 per euro.

Powell, speaking before Congress, reiterated that the Fed was in no hurry to lower interest rates. His remarks pushed 10-year Treasury yields up by about 4 basis points, providing some backing for the dollar.

Markets Focus on CPI Data for Rate Outlook

At 13:30 GMT, the U.S. Consumer Price Index (CPI) report for January will be released. A Reuters poll suggests that core inflation is expected to rise slightly to 0.3% for the month.

Currency traders holding long-dollar positions—currently around $31.5 billion against other G10 currencies—could become cautious if the inflation data comes in softer than expected. A weaker CPI reading may reignite speculation about Fed rate cuts, potentially leading to an unwinding of bullish dollar bets.

Global Currency Movements Amid Trade Tensions

• British pound (GBP/USD): Hovered at $1.2441, after gaining 0.7% on Tuesday.
• Australian dollar (AUD/USD): Held a modest gain at $0.6291.
• Canadian dollar (CAD/USD): Remained firm at C$1.4295 per U.S. dollar, near its strongest levels of the year.

Trade War Concerns and Tariff Fallout

The European Union, Mexico, and Canada have strongly opposed President Donald Trump’s 25% tariffs on steel and aluminum imports. European Commission President Ursula von der Leyen warned of countermeasures in response.

While investors initially saw U.S. tariffs as bullish for the dollar, anticipating that they could reshape trade flows and weaken other currencies, the long-term inflationary impact remains uncertain. As retaliatory tariffs take effect, some traders are paring back their bullish positions on the dollar.

Meanwhile, the Mexican peso and other emerging market currencies remained under pressure, near multi-month lows. The Vietnamese dong hit a record low, as concerns grew that Vietnam’s large trade surplus with the U.S. and its deep trade ties with China could make it a target for additional tariffs.