Dollar Drops Against Euro and Yen Amid Tariff-Driven Inflation Concerns
The dollar drops against euro and yen after touching multi-week highs a day earlier. This shift came as US inflation data linked to rising tariffs tempered expectations for major Federal Reserve rate cuts.
In June, prices increased on several imported goods like coffee, electronics, and furniture. These increases pointed to persistent inflationary pressure, largely driven by tariffs, which rattled investors and pulled the dollar lower.
Markets Reevaluate Fed Rate Cut Expectations
The benchmark 10-year US Treasury yield stood at 4.48% during London trading. It had reached 4.491% on Tuesday, its highest level since June 11.
Traders are now pricing in around 44 basis points of Fed rate cuts by December. This is a decrease from over 50 basis points predicted earlier this week.
The greenback fell 0.1% to 148.65 yen after peaking at 149.19, a level not seen in 3.5 months. Meanwhile, the euro gained 0.20%, breaking a five-day losing streak to trade at $1.1625. The British pound also recovered, rising 0.15% to $1.3405.
Economist Tiffany Wilding of PIMCO explained that while goods inflation remains high due to tariffs, falling services prices still support future rate cuts.
Focus Shifts to US Producer Price Index and Fed Outlook
Attention now turns to the upcoming US producer price index (PPI) data. Investors are watching closely for signs that inflation might be gaining momentum again.
The dollar index, which tracks the greenback against major currencies, slipped 0.16% to 98.46.
Speculation also surrounds the Fed’s leadership. Former President Trump has openly criticized Jerome Powell and hinted at replacing him. Concerns over Fed independence could also impact dollar stability.
Additionally, Indonesia confirmed a trade deal with the US, lowering proposed tariffs from 32% to 19%. Trump mentioned that a similar agreement with Vietnam was nearly finalized.
As the dollar drops against euro and yen, markets remain sensitive to inflation data, interest rate policies, and evolving global trade dynamics.
