The U.S. dollar extended its losses on Wednesday, following its largest drop in more than three weeks, as weaker-than-expected consumer inflation data from the U.S. fueled speculation that the Federal Reserve may ease its monetary policy.
The euro rose 0.33% to $1.1222, and the pound gained 0.24% to $1.3335. Meanwhile, the dollar dropped 0.96% against the Japanese yen to 146.04.
As a result, the dollar index, which measures the currency against six major peers, decreased by 0.40% to 100.58.
The recent data showing a softer-than-expected 0.2% increase in the U.S. consumer price index has strengthened expectations for potential Federal Reserve rate cuts, as global trade tensions appear to ease. The dollar, which typically rises during periods of market uncertainty, has seen a reversal of this trend as concerns grow over the U.S. economic outlook.
The dollar index had briefly climbed 1% on Monday, reaching a one-month high, on investor optimism surrounding de-escalating U.S.-China trade tensions. However, the index lost ground the following day after inflation data missed expectations.
In addition to the CPI data, market participants have been reflecting on talks between South Korea’s Deputy Finance Minister and U.S. Treasury officials, which suggested that the U.S. administration might be inclined toward a weaker dollar policy. As a result, the dollar slid to its lowest level in a week against the South Korean won, with the currency pair last trading at 1,397.35 won, down 1.3%.
Looking ahead, Thursday’s U.S. retail sales and producer price index (PPI) data, along with a speech from Federal Reserve Chairman Jerome Powell, could provide further clarity on the economic outlook. As traders await these developments, the market is pricing in around 53 basis points of rate cuts between now and the end of the year, with expectations for the first quarter-point cut in September.
