Dollar Retreats After Inflation Data

By Chuck Mikolajczak

NEW YORK (Reuters) – The dollar retreated on Tuesday, pulling back from sharp gains in the prior session after a reading on inflation was less than market expectations.

The Labor Department reported a 0.2% increase in the consumer price index (CPI) last month, falling short of economists’ expectations of a 0.3% gain and following a dip of 0.1% in March.

However, inflation is expected to rise in the coming months as U.S. tariffs increase the cost of imported goods.

> “While the headline number for inflation was better than expected, there are indicators that tariffs have already pushed prices higher,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
>
> “Turning down the temperature of tariffs is good as the price effects would start seeping into the consumer basket pretty quickly. The trade reset with China might mean the Fed can go back to business as usual and gradually resume cutting rates later this year.”

The dollar index, which measures the greenback against a basket of currencies including the yen and euro, declined 0.36% to 101.36, as the euro rose 0.5% to $1.1142.

After rallying more than 1% in the prior session due to optimism over a tariff deal between the United States and China, the dollar remains over 2% below its level on April 2, when President Donald Trump announced tariffs that led to foreign investors reducing their exposure to U.S. stocks and bonds.

Against the Japanese yen, the dollar fell 0.45% to 147.78, after rallying more than 2% the previous day.

The greenback weakened 0.47% to 0.841 against the Swiss franc after a 1.6% climb on Monday.

The dollar edged up 0.01% to 7.199 versus the offshore Chinese yuan, following a drop to a six-month low of 7.1779.

The alleviation of U.S.-China trade tensions has led market participants to reduce recession odds, alongside expectations regarding the timing and extent of Federal Reserve rate cuts this year.

Major brokerages, including Goldman Sachs, J.P. Morgan, and Barclays, have recently lowered their U.S. recession forecasts and adjusted their views on Fed policy easing.

A rate cut of at least 25 basis points (bps) is now expected at the central bank’s September meeting, compared to previous expectations for a cut in July, according to LSEG data. About 51 bps of cuts are now priced in for 2025.

Sterling strengthened 0.43% to $1.3229.

Among cryptocurrencies, Bitcoin gained 0.99% to $103,699.57 after reaching a high of $105,716.07 on Monday, marking a 3-1/2 month high. Ethereum rose 2.44% to $2,547.01.