Dollar rebounds with CPI data in line, bankers back Powell
The U.S. dollar edged higher in early Asian trading on Wednesday, approaching a one-month peak, as December inflation data aligned with expectations, reinforcing the likelihood that the Federal Reserve will maintain interest rates this month despite escalating political pressure.
The U.S. Dollar Index gained 0.3% to 99.18, recovering from Monday's selloff triggered by President Donald Trump’s threats against Fed Chair Jerome Powell. Tuesday’s Consumer Price Index (CPI) report showed a 0.3% monthly increase, driven by rents and food prices, easing concerns of deflationary distortions from November. Fed funds futures now price a 95.6% probability of no rate change at the January 28 meeting.
Central Bank Independence in Focus
The data arrived amid a chorus of support for the Fed’s independence from global central bankers and Wall Street leaders. ANZ’s Brian Martin noted, “Markets are erring on the side of caution… the independence of the Fed will be protected.” Analysts at Capital Economics added that attacks on the Fed are unlikely to severely disrupt markets “so long as inflation there remains under control.”
Currency Moves and Regional Developments
The Japanese yen held near 159.025 per dollar, having touched its weakest level since January 2024 on speculation Prime Minister Sanae Takaichi may call snap elections.
The euro and British pound were steady at $1.1642 and $1.3423, respectively.
The offshore Chinese yuan traded flat at 6.9708 ahead of December trade data.
Bitcoin surged 1.8% to $95,751.99, a two-month high, while Ether rose 4.0% to $3,334.46.
Market attention now shifts to an impending U.S. Supreme Court ruling on the legality of Trump’s emergency tariffs. ING analysts suggested the outcome may have limited lasting impact, noting the Treasury market’s “remarkable capacity to just not care too much about stuff.”
The dollar’s resilience underscores a market betting on institutional stability over political noise, at least for now.
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