By Eric Chia, Financial Markets Strategist, Exness
The US dollar stabilized to a certain extent on Wednesday after a multi-day rally that took it to a three-week high. The pause came as investors awaited June’s Producer Price Index, which may offer further insight into the inflationary effects of recent tariffs and help shape expectations for monetary policy.
On Tuesday, the dollar strengthened following the CPI report. While core inflation came in softer than expected, both core and headline data rose on a monthly basis, prompting markets to reassess the pace of potential Federal Reserve rate cuts. Dallas Fed President Lorie Logan echoed this caution, suggesting that rates should remain on hold to contain inflationary pressure stemming from tariffs.
Treasury yields remained elevated, with the 10-year note hovering just below 4.49%, still near a five-week high. Yields could remain near current levels amid reduced expectations of aggressive easing.
Political pressure on the Fed continues to cloud the outlook. President Trump intensified criticism of Chair Powell, linking cost overruns at the Fed headquarters to potential dismissal, further stoking speculation about a leadership shakeup. The latter could drive Treasury yields to the upside if confidence in the Fed’s independence is weakened.
Looking ahead, attention shifts to today’s PPI data. Any upside surprise could sharpen the inflation narrative and drive the dollar and yields higher.