Dollar Surges as Inflation Data Dents Fed Rate Cut Hopes

Dollar Surges as Inflation Data Dents Fed Rate Cut Hopes

Wednesday 12th February 2025 – 13:55 (GMT)

The dollar index advanced towards 108.5 on Wednesday, marking its highest level in over a week, as fresh US inflation data underscored persistent price pressures and cast doubt on the Federal Reserve’s timeline for monetary easing.

Headline consumer price inflation unexpectedly climbed to 3% year-on-year in January, while the core measure, which strips out volatile food and energy prices, rose to 3.3%. On a monthly basis, inflation accelerated 0.5% – the sharpest increase since August 2023. The figures reinforced the Fed’s cautious stance on rate cuts, with Chair Jay Powell reiterating before Congress that the central bank sees no urgency in loosening policy. His remarks echoed the Fed’s January decision to maintain borrowing costs, defying earlier market expectations of a more dovish pivot.

Investors are now pricing in just a single 25 basis point cut in the federal funds rate by December, a stark contrast to more aggressive easing bets seen at the start of the year. The recalibration has lent further support to the dollar, which has outperformed against major peers in recent sessions.

Meanwhile, former President Donald Trump renewed his call for lower interest rates, posting on Truth Social that cuts should accompany potential tariffs. “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Let’s Rock and Roll, America!!!” he wrote. His comments add to growing political pressure on the Fed as policymakers navigate inflationary risks and electoral uncertainty.