Dollar hands back some gains; PPI data to provide more clarity

Investing.com - The U.S. dollar slipped slightly lower Wednesday, but remained near recent highs after persistent U.S. inflation suggested tariffs are pushing prices up, dampening expectations for an early Federal Reserve interest rate cut.

At 04:55 ET (08:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, slipped 0.1% to 98.205, after reaching a one-month high in the prior session. 

Dollar awaits PPI release

U.S. consumer prices rose 0.3% in June, data showed on Tuesday, the largest gain since January, with economists attributing this to the Trump administration’s escalating import tariffs.

The Fed has been keeping interest rates steady, much to U.S. President Donald Trump’s chagrin, as it has waited for indications of the inflationary impact from tariffs, which Chair Jerome Powell had said he expected in the summer.

“Yesterday’s reality check on Fed cuts speculation could have a lasting effect by raising the bar for dovish repricing, and we therefore feel the risks remain skewed to a stronger dollar from here,” said analysts at ING, in a note.

Attention now turns to U.S. producer price data later in the day for further clues on whether price pressures are indeed beginning to pick up.

“Expect markets to move on any surprise, although consensus is already positioned for a relatively benign 0.2% MoM print on headline and core PPI.”

Euro, sterling bounce after losses 

In Europe, EUR/USD rose 0.2% to 1.1621, bouncing off the previous session’s three-week low.

European Central Bank policymaker Joachim Nagel said that a "steady hand" was required to deal with the uncertainty unleashed by Trump’s latest tariff threat, in comments to business daily Handelsblatt.

The effect on prices of both the geopolitical environment and the trade conflict with the United States was "extremely uncertain", he added.

The ECB signalled after its June meeting that it was likely to keep interest rates unchanged when it meets again next week.

GBP/USD climbed 0.1% to 1.3392, near three-week lows hit in the previous session, after Britain’s annual rate of consumer price inflation unexpectedly rose to its highest in over a year at 3.6% in June.

“Sterling is trading modestly stronger after the release. The risks associated with tomorrow’s jobs numbers are probably preventing any larger hawkish repricing in the Sonia curve and, by extension, keeping GBP gains contained,” said ING.

“Markets continue to price in two rate cuts by year-end, but the recent tendency has been to explore more dovish pricing.”

Asian currencies edge higher

Elsewhere, UUSD/JPY traded 0.1% lower to 148.82, after raising almost 1% overnight after the release of the U.S. inflation data.

AUD/USD gained 0.1% to 0.6521, while USD/CNY traded 0.1% higher to 7.1770, as the Asian currencies stabilized after overnight losses.