The following is a rewritten and extended version of the article originally published by Reuters on TradingView titled “Dollar slips after US inflation data,” credited to Gertrude Chavez-Dreyfuss.
Title: Dollar Weakens Following Lower-than-Expected U.S. Inflation Data, Raising Fed Rate Cut Speculation
Author: Adapted from original article by Gertrude Chavez-Dreyfuss, Reuters
Date: April 10, 2025
The U.S. dollar experienced a modest but decisive decline against major world currencies following the release of fresh U.S. economic data showing a slower-than-anticipated rise in inflation. The core Consumer Price Index (CPI) figures, announced on Thursday, provided a cooling signal for inflation that investors interpreted as a potential stepping stone for interest rate cuts by the Federal Reserve in the near term.
Market participants responded rapidly to the data, selling off dollars in anticipation of a policy shift, while stocks rallied and bond yields dipped. Let’s explore the full scope of factors that contributed to this currency movement and what it could mean going forward for foreign exchange markets.
U.S. Inflation Data in Focus
The March consumer inflation report from the U.S. Labor Department came in slightly below expectations, especially in key areas such as shelter and services. Here are the highlights of the inflation figures:
– The headline CPI rose 0.2% in March from the previous month, compared with economists’ median forecast of a 0.3% rise.
– On a 12-month basis, CPI climbed 3.3%, down from 3.5% the previous month.
– The core CPI, which excludes volatile food and energy prices, rose by 0.3% month-over-month and 3.7% year-over-year. Analysts had forecast 0.4% and 3.8% respectively.
– Notably, the shelter index increased by 0.2%, the smallest monthly rise in over a year.
These figures are widely interpreted as signs of disinflation, strengthening the case that consumer prices are gradually aligning with the Federal Reserve’s 2% inflation target.
Market Expectations for the Federal Reserve
The U.S. consumer inflation report triggered a re-evaluation of expectations surrounding the Federal Reserve’s monetary policy. Prior to the report, markets were debating whether the central bank would maintain higher interest rates for longer due to persistent inflation concerns. However, the softer inflation numbers prompted traders and analysts alike to speculate that the Fed may begin its easing cycle sooner than initially projected.
As a result:
– Futures markets showed a rise in the implied probability of a rate cut as early as the Federal Reserve’s June policy meeting.
– Traders are now forecasting a total of two to three rate cuts by the end of 2025, compared to more conservative estimates previously.
– The benchmark federal funds rate is currently set between 5.25% and 5.50%.
In a note released Thursday morning, TD Securities commented that the data is “strongly supportive of a cut in the second half of this year,” with the June FOMC meeting now “firmly on the table” as a potential start point for easing.
Dollar Weakness Across the Board
Following the data release, the greenback weakened against a broad range of peers. The U.S. Dollar Index (DXY), which measures the currency’s value relative to a basket of six major currencies, declined by 0.42% on the day to 104.65.
Here’s how the dollar performed relative to major currencies:
– Euro: The euro rallied 0.5% to $1.0968, its strongest level in more than a week.
– Japanese yen: The dollar lost 0.7% against the yen, falling to 147.35 yen. Japanese authorities have repeatedly warned markets about potential intervention in recent weeks as the yen continues to struggle.
– British pound: The British pound rose 0.4% to $1.2736
Read more on EUR/USD trading.