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What’s happening: The US dollar edged lower on Wednesday, as investors digested the latest inflation data.
What happened: The Brazilian real, Russian ruble, Chinese yuan, and Indian rupee made advances against the US dollar.
The BRL/USD forex pair is on course for its best week since October 2024.
Why it matters: Data released on Wednesday showed that the annual inflation rate in the US accelerated to 3% in January, from 2.9% in the previous month. The figure also came in higher than market estimates of 2.9%. Energy costs grew 1% year-over-year to record the first rise in six months, following a 0.5% decline in December.
Federal Reserve Chairman Jerome Powell had said on Tuesday that the central bank was in no rush to cut interest rates. While US President Donald Trump has been asking for interest rate cuts, there are growing concerns around the government’s tariff policies increasing inflationary pressure.
The RUB/USD continued rising on Wednesday, putting the forex pair on track for its strongest week since early October last year. The forex pair had been rising due to lower demand for US dollars by Russian importers. Moreover, the country’s Finance Ministry announced plans last week to boost sales of the Chinese yuan by 17%. The yuan has emerged as the most traded foreign currency in Russia, after sanctions on the country’s US dollar reserves.
The INR/USD had risen sharply on Tuesday, recording the strongest gains in over two years versus the US dollar, after the Reserve Bank of India. The Indian rupee had been on a downward trajectory, with the US announcing tariffs on steel and aluminium and the Reserve Bank of India (RBI) announcing a reduction in the policy repo rate.
The CNY/USD had declined to three-week lows, with the US announcing new tariffs of 10% and additional tariffs on steel and aluminium. Investors have been concerned about increasing trade tensions between the two counties.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged lower to 107.94 on Wednesday.
The BRL/USD was trading mostly flat this morning, after recording gains on Wednesday. The BRL/USD, INR/USD and CNY/USD were up 1.08%, 0.14% and 0.29%, respectively, this morning.
What to watch: Investors now await the release of economic data on PPI (1730 UAE Time) and initial jobless claims (1730 UAE Time) from the US today. Factory gate prices in the US, which rose 0.2% in December, are expected to increase by 0.3% in January.
Initial jobless claims, which rose by 11,000 from the previous week to 219,000 in the final week of January, are projected to decline to 215,000.
Context: Equity markets in Europe closed higher on Wednesday, as investors monitored the latest corporate earnings and US inflation data.
Details: The US reporting hotter-than-projected inflation data resulted in markets scaling back speculations of rate cuts by the Federal Reserve in 2025.
On the corporate front, Kering’s shares gained around 7% on Wednesday, after the company reported upbeat 2024 results and showed improvement in trends in key markets.
Investors also monitored growing tensions between the US and the European Union, after President Donald Trump imposed tariffs on European steel and aluminium. European Commission President Ursula von der Leyen said the tariffs imposed were “unjustified.” Germany’s Chancellor Olaf Scholz also warned of responding “within an hour,” in case tariffs were enforced by the US.
The STOXX Europe 600 Index gained 0.11% to close at 547.78 on Wednesday. London’s FTSE 100 rose 0.34% to settle at 8,807.44, while Germany’s DAX 40 and France’s CAC 40 added 0.50% and 0.17%, respectively.
What to watch: Investors await the release of economic data on Eurozone’s industrial production (1400 UAE Time) today. Analysts expect industrial production in the Eurozone to decline by 0.6% in December, following a 0.2% increase in November. Industrial production, which fell 1.9% year-over-year in November, is expected to contract by 3.1% in December.
Other Markets: US trading indices closed mixed on Wednesday, with the Dow Jones index and S&P 500 down by 0.50% and 0.27%, respectively, and the Nasdaq 100 up by 0.12%.
US President Donald Trump announced that Russian President Vladimir Putin had agreed to begin negotiations for ending the war with Ukraine, in a phone conversation. The news sent the safe-haven US dollar slightly lower in forex trading this morning.
Australia’s consumer inflation expectations rose to 4.6% in February, versus 4.0% rise in the previous month. The latest reading being the highest since April 2024 exerted pressure on the AUD/USD forex pair.
New Zealand’s electronic card transactions fell by 1.6% to NZ$6,506 million in January, sending the NZD/USD pair lower in forex trading this morning.
The Energy Information Administration said crude oil inventories in the US climbed by 4.07 million barrels for the week ended February 7, higher than market projections of a gain of 3 million barrel, which exerted pressure on the WTI crude oil prices.
Japan’s producer prices rose by 4.2% year-over-year in January, following a 3.9% increase in the previous month. Despite the latest reading coming in above market estimates of 4%, the JPY/USD pair rose in forex trading this morning.
South Africa’s gold production (1330 UAE Time) and mining production (1330 UAE Time), Turkey’s foreign exchange reserves (1530 UAE Time), Brazil’s retail sales (1600 UAE Time), US continuing jobless claims (1730 UAE Time), EIA natural gas stocks change (1930 UAE Time) and total household debt (2000 UAE Time), as well as Argentina’s inflation rate (2300 UAE Time).
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