The US Dollar continued to strengthen early Wednesday after outperforming major peers in the previous session, as investors reacted to stronger-than-expected US inflation data and rising Treasury yields.
Market participants are now focusing on upcoming economic data releases and developments from the summit between US President Donald Trump and Chinese President Xi Jinping.
During the European trading session, investors are expected to closely monitor the revised first-quarter Gross Domestic Product (GDP) data for the Eurozone.
Later in the day, attention will shift to the US Producer Price Index (PPI) report for April.
US inflation exceeds expectations
Data released by the US Bureau of Labor Statistics on Tuesday showed that annual inflation, measured by the Consumer Price Index (CPI), increased to 3.8% in April.
The figure exceeded the market forecast of 3.7% and marked the highest reading since May 2023.
Core inflation, which excludes food and energy prices, also accelerated.
The core CPI rose 2.8% annually in April, compared to 2.6% in March and analysts’ expectations of 2.7%.
The stronger inflation figures pushed US Treasury yields higher.
The benchmark 10-year Treasury yield climbed above 4.46%, reaching its highest level since late March.
Following the inflation report, the US Dollar Index gained around 0.4% on Tuesday.
Early Wednesday, the index remained stable near 98.40.
Meanwhile, Wall Street’s major indexes posted significant losses after the inflation data raised concerns about the outlook for interest rates.
US stock index futures traded mixed during the early European session on Wednesday.
Gold stabilises after volatile session
Gold prices experienced sharp fluctuations on Tuesday as investors reacted to the inflation figures and broader market uncertainty.
The precious metal recovered above $4,700 late in the American trading session after falling below $4,640 during European hours.
Despite the rebound, gold closed the day with modest losses.
By midweek, gold prices were trading relatively flat slightly above the $4,700 level.
Euro weakens as ECB official comments on inflation
The euro remained under pressure against the US dollar on Wednesday.
EUR/USD traded below 1.1730 after declining around 0.4% during Tuesday’s session amid broad US dollar strength.
European Central Bank Governing Council member François Villeroy de Galhau said policymakers still lacked sufficient information regarding core inflation trends.
However, Villeroy de Galhau added that the European Central Bank must remain prepared to intervene in order to address potential second-round inflation effects.
Political uncertainty weighs on British pound
The British pound also faced strong selling pressure against the dollar.
GBP/USD declined sharply on Tuesday as investors reacted to political developments in the United Kingdom.
UK Prime Minister Keir Starmer is reportedly facing increasing pressure after four ministers resigned from the government.
Reports also suggested that more than 80 lawmakers had urged him to resign or provide a timeline for his departure.
The political uncertainty added to the broader strength of the US dollar and weighed heavily on sterling.
USD/JPY remains stable above 157.50
The Japanese yen remained relatively stable against the dollar after Tuesday’s gains for the US currency.
USD/JPY continued to consolidate above the 157.50 level during Wednesday’s session following moderate advances recorded a day earlier.
Investors are expected to remain cautious ahead of further economic data releases and potential headlines from the Trump-Xi summit, which could influence broader market sentiment in the sessions ahead.
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