Dollar Holds Near Three-Week Peak Awaiting US Inflation Data
Markets Watch for Fed Clues Amidst Trump’s Continued Scrutiny of Powell
The U.S. dollar held firm against its major currency counterparts on Tuesday, trading near a three-week pinnacle. Investors are keenly anticipating the release of crucial U.S. inflation figures later today, which are expected to shed light on the Federal Reserve’s future monetary policy direction.
Treasury Yields and Fed Leadership in Focus
Elevated Treasury yields are also bolstering the greenback. Meanwhile, market sentiment is being influenced by ongoing speculation surrounding Federal Reserve Chair Jerome Powell‘s tenure, fueled by President Donald Trump‘s persistent criticism of the central bank’s leadership.
Aussie Dollar Dips Ahead of China GDP Report
The Australian dollar experienced a decline from its recent eight-month high. This softening occurred as traders braced for the release of gross domestic product data from China, Australia’s most significant trading partner.
Bitcoin Surges to All-Time High on Legislative Hopes
In cryptocurrency markets, Bitcoin has reached unprecedented territory, trading at $120,067 after hitting an all-time high of $123,153.22 on Monday. This surge is attributed to investor optimism regarding anticipated legislative policy advancements for the digital asset sector this week.
Dollar Steady Against Yen, Index Nears Recent Peaks
Early in the Asian trading session, the dollar remained largely unchanged against the Japanese yen, trading at 147.75. It was hovering just below Monday’s high of 147.78, a level not seen since June 23. The dollar index, which measures the currency against a basket of six major rival currencies, stood at 98.104, marginally below its overnight peak of 98.136, its highest point since June 25.
Euro Edges Lower as Dollar Strength Persists
The euro saw little movement, holding at $1.1662. This followed a dip to $1.1650 on Monday, marking its lowest point against the dollar since June 25, underscoring the prevailing strength of the U.S. currency.
Inflation Expectations and Fed’s Policy Stance
Federal Reserve Chair Jerome Powell has previously indicated expectations of rising inflation during the summer months, partly due to tariff impacts. This outlook suggests the U.S. central bank is likely to maintain its current interest rate policy until later in the year. Economists surveyed by Reuters anticipate headline inflation to reach 2.7% on an annual basis, an increase from the previous month’s 2.4%. Core inflation is projected to climb to 3.0%, up from 2.8%.
“Should inflation fail to materialise or remain steady, questions may arise regarding the Fed’s recent decision not to cut rates, potentially intensifying calls for monetary easing.”
—James Kniveton, Senior Corporate FX Dealer at Convera
“Calls from the White House for leadership changes at the Fed may increase.”
—James Kniveton, Senior Corporate FX Dealer at Convera
President Trump reiterated his criticism of Powell on Monday, asserting that interest rates should be at 1% or lower. This contrasts sharply with the Federal Reserve’s current target range of 4.25% to 4.50% for the key interest rate this year.
Futures markets currently price in approximately 50 basis points of interest rate reductions by the end of the year, with a September cut being the most anticipated. The Federal Reserve’s decisions are closely watched; in May 2023, the US inflation rate was reported at 4.0% year-over-year (U.S. Bureau of Labor Statistics).
China’s Economic Slowdown Pressure
Meanwhile, China’s economy is expected to show signs of cooling in the second quarter after a robust start to the year. Trade tensions and a protracted downturn in the property sector are weighing on demand, increasing pressure on Chinese policymakers to implement additional stimulus measures to support economic growth.
Tuesday’s forthcoming data is forecast to reveal that GDP expanded by 5.1% year-on-year in April–June, a deceleration from the 5.4% growth recorded in the first quarter, according to a Reuters poll.
