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The U.S. dollar steadied in European trade on Wednesday as investors awaited another round of key inflation data, while the Japanese yen sank to its weakest level in a year and a half on mounting political and fiscal concerns.
At 09:30 GMT, the Dollar Index, which measures the greenback against a basket of six major peers, traded broadly unchanged at 98.910 after starting the week on a softer footing.
Dollar Stabilizes Ahead of Fresh Data
The dollar briefly slipped on Tuesday after U.S. consumer price data suggested the Federal Reserve could have slightly more room to ease policy. Core CPI rose 0.2% in December, bringing the annual pace to 2.6%, marginally below expectations.
Attention now turns to further U.S. releases later on Wednesday, including producer prices and retail sales, which could offer additional clues on inflation dynamics and consumer momentum.
The greenback also found some support after Federal Reserve Chair Jerome Powell received coordinated backing from global central bank officials, following threats of legal action from the Trump administration over his congressional testimony related to renovation work at the Fed’s headquarters. The episode revived concerns about the independence of the central bank, but the show of international support helped calm immediate market nerves.
Traders are also watching closely for a potential Supreme Court ruling on the legality of President Trump’s tariff policies, which could arrive as early as later in the session and carry implications for trade and currency markets.
Greenland Talks in Focus for Europe
In Europe, the euro edged 0.1% higher to 1.1650 against the dollar ahead of talks between U.S., Danish and Greenlandic officials over the future of the minerals rich Arctic territory.
Sterling also advanced, with GBP/USD rising 0.2% to 1.3451.
Yen Weakens on “Takaichi Trade”
In Asia, the yen continued to weaken. USD/JPY rose 0.1% to 159.15, after earlier touching its highest level since June 2024.
The move followed reports that Japanese Prime Minister Sanae Takaichi is preparing to dissolve parliament and call a snap lower house election, potentially as early as February 8. Markets have focused on Takaichi’s pledges for aggressive fiscal expansion, including large stimulus packages aimed at boosting growth and combating deflation.
These plans, often referred to by traders as the “Takaichi trade,” are seen as increasing government debt and delaying any meaningful tightening by the Bank of Japan, putting further pressure on the yen.
China Data Supports Yuan
Elsewhere, USD/CNY slipped 0.1% to 6.9736 after Chinese trade data for December showed a robust surplus, with exports beating expectations and imports growing at a healthy pace. The figures pointed to resilient external demand and signs of firmer domestic consumption.
For the full year 2025, China’s trade surplus swelled to a record $1.25 trillion, as weaker exports to the United States were largely offset by strong demand from other regions.
The Australian dollar was little changed, with AUD/USD trading near 0.6688.
