By Chuck Mikolajczak
NEW YORK (Reuters) – The dollar retreated on Tuesday, pulling back from sharp gains in the prior session after a reading on inflation was less than market expectations.
The Labor Department said the consumer price index (CPI) increased 0.2% last month, under expectations of economists polled by Reuters for a 0.3% gain, after dipping 0.1% in March.
Still, inflation is likely to pick up steam in the coming months as U.S. tariffs lift the cost of imported goods.
“While the headline number for inflation was better than expected, there are indicators that tariffs have already pushed prices higher,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“Turning down the temperature of tariffs is good as the price effects would start seeping into the consumer basket pretty quickly. The trade reset with China might mean the Fed can go back to business as usual and gradually resume cutting rates later this year.”
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.36% to 101.36, with the euro up 0.5% at $1.1142.
The greenback rallied more than 1% in the prior session on optimism a tariff deal between the United States and China could cool a trade war between the world’s two largest economies that raised the risk of a global recession.
The dollar is still more than 2% below its April 2 level, when U.S. President Donald Trump announced tariffs and prompted overseas investors to reduce their exposure to U.S. stocks and bonds.
Against the Japanese yen, the dollar weakened 0.45% to 147.78, after rallying more than 2% in the prior session as the risk-on mood dented the appetite for safe-haven assets.
The greenback weakened 0.47% to 0.841 against the Swiss franc after climbing 1.6% on Monday.
The dollar edged up 0.01% to 7.199 versus the offshore Chinese yuan, after falling to a six-month low of 7.1779.
The curtailment of U.S.-China trade tensions has led market participants to dial back odds of a recession, along with expectations for the timing and magnitude of rate cuts from the Federal Reserve this year.
Major brokerages, including Goldman Sachs, J.P. Morgan and Barclays have recently scaled back their U.S. recession forecasts and their view of Fed policy easing.
A rate cut of at least 25 basis points (bps) is now seen as likely at the central bank’s September meeting, compared with the prior view for a cut at the July meeting, according to LSEG data. About 51 bps of cuts are now being priced in for 2025.
Sterling strengthened 0.43% to $1.3229.
Among cryptocurrencies, bitcoin gained 0.99% to $103,699.57 after hitting a high of $105,716,07 on Monday, a 3-1/2 month high. Ethereum rose 2.44% to $2,547.01.
(Reporting by Chuck Mikolajczak, additional reporting by Rae Wee and Linda Pasquini; editing by Mark Heinrich)
