The US dollar held steady on Wednesday ahead of more key inflation data, while the Japanese yen fell to its lowest level in a year and a half.
At 12:30 Saudi time, the dollar index, which tracks the performance of the US currency against a basket of six other currencies, traded with little change at 98.9100, after starting the new week on a shaky footing.
Dollar stability
The U.S. dollar briefly fell on Tuesday after consumer prices were seen as a potential signal that the Federal Reserve has more room to cut interest rates, with the core consumer price index rising 0.2% in December, to an annual increase of 2.6%, slightly below expectations.
However, yesterday's price action actually reinforced our positive short-term outlook for the dollar: despite the decline in the Consumer Price Index, the Federal Reserve's pricing barely moved, and the dollar quickly rebounded, analysts at ING said in a note.
There is more inflation data to digest on Wednesday, in the form of producer prices for October, as well as retail sales for November.
The dollar also received a boost after Federal Reserve Chairman Jerome Powell secured coordinated support from global central bank officials after the Trump administration threatened criminal charges over his testimony about renovations at the central bank's headquarters, raising concerns about the Fed's independence.
We still see a reasonable chance that the dollar will ultimately emerge stronger from this event, as Powell could be perceived as more hawkish in an effort to bolster the Fed's independence, ING added.
Traders are also watching the Supreme Court's decision on the legality of Trump's tariff policies, which may be issued later in this session.
Greenland talks in the spotlight
In Europe, the euro/dollar pair rose 0.1% to 1.1650, ahead of talks between US, Danish and Greenlandic officials about the future of the mineral-rich island.
So far, US threats regarding Greenland have had little impact on the market, so there is limited downside risk even if talks point toward a cooperative outcome. However, any progress could remove the persistent geopolitical 'black swan' risk for European currencies, ING said.
Constructive headlines could slow the EUR/USD decline a little, but we continue to target 1.1600 in the coming days.
The GBP/USD pair rose 0.2% to 1.3451.
Takaichi's deal hits the yen
In Asia, the dollar/yen pair rose 0.1% to 159.15, having earlier climbed to its highest level since June 2024, as the Japanese currency weakened.
Media reports indicate that Japanese Prime Minister Sanae Takaichi is preparing to inform her cabinet of her intention to dissolve parliament later on Wednesday, with February 8 emerging as a possible date for a snap election for the House of Representatives.
Investors focused on Takaichi's pledges of expansionary fiscal policies – including large stimulus packages aimed at boosting growth and fighting deflation – which could put further pressure on the yen by increasing government debt and delaying the Bank of Japan's tightening monetary policy.
The possibility of a politically motivated financial payment, dubbed the Takaichi deal, added pressure to the currency in recent sessions.
The dollar/yuan pair fell 0.1% to 6.9736 after the release of Chinese trade data for December, which showed a strong surplus as exports beat expectations and imports grew at a healthy pace, indicating resilient external demand and signs of strengthening domestic consumption.
For the full year 2025, the trade surplus ballooned to a record high of $1.25 trillion, as disruptions in exports to the United States were largely offset by strong demand from other regions.
The Australian dollar/US dollar pair traded virtually unchanged at 0.6688.
