Dollar rebounds with CPI data in line, bankers back Powell

SINGAPORE – The US dollar recovered ground to near a one-month high in early Asian trade on Wednesday after US CPI data that was broadly in line with estimates, firming up expectations that the Federal Reserve will remain on hold later this month despite unprecedented pressure from the White House to lower interest rates.

The US dollar index, which measures the greenback’s strength against a basket of six currencies, was last up 0.3% at 99.18, retracing losses from Monday after US President Donald Trump threatened Fed Chair Jerome Powell with a criminal indictment.

Global central bank chiefs and top Wall Street bank CEOs lined up in support of Powell on Tuesday.

“There’s a very loud chorus of opinion coming from politicians, former Fed chairmen and other officials that Fed independence is sacrosanct and cannot be interfered with,” said Brian Martin, head of G3 Economics at ANZ in London.

“It risks having adverse consequences of higher inflation, higher funding costs for the government and more volatility in economic activity,” he said on a podcast.

“Markets are erring on the side of caution: They’re not jumping to conclusions, and I think that sense will prevail and that the independence of the Fed will be protected.”

On Tuesday, data showed US consumer prices increased 0.3% in December compared to the previous month, lifted by higher costs for rents and food as some of the distortions related to the government shutdown that had artificially lowered inflation in November unwound.

The print cemented expectations the Federal Reserve would leave interest rates unchanged this month, with Fed funds futures currently pricing an implied 95.6% probability that the US central bank will remain on hold when its next two-day meeting concludes on 28 January, unchanged from a day earlier, according to the CME Group’s FedWatch tool.

“Indirect attacks on the Fed’s independence aren’t likely to roil the financial markets in the US, so long as inflation there remains under control,” wrote analysts from Capital Economics.

Volatility in most currency pairs was subdued in early Asian trading ahead of a possible Supreme Court ruling on the legality of Trump’s emergency tariffs.

“It could rule them legit, and if so we just move on. We suspect they will be struck down, and we’ll probably still just move on,” analysts from ING wrote in a research report.

“This Treasury market is showing a remarkable capacity to just not care too much about stuff.”

Against the yen, the US dollar was last flat at 159.025 yen, little changed after the Reuters Tankan poll showed Japanese manufacturers’ confidence slipped to a six-month low in January, albeit still in positive territory.

The yen had earlier fallen to its weakest levels since January 2024 on speculation that Japanese Prime Minister Sanae Takaichi may call parliamentary elections to consolidate her power.

The Yomiuri newspaper reported on Wednesday that she is considering snap lower house elections on February 8.

Against the Chinese yuan trading offshore in Hong Kong, the US dollar was last flat at 6.9708 yuan ahead of the release of Chinese trade data for December in a few hours’ time.

The Australian dollar was last up 0.1% at USD 0.6688, while the New Zealand dollar nudged 0.1% upwards to USD 0.5740.

The euro was last flat at USD 1.1642, while the British pound also held steady at USD 1.3423.

Bitcoin gained 1.8% to USD 95,751.99, rising to the highest level in two months, while ether was last up 4.0% at USD 3,334.46.

(Reporting by Gregor Stuart Hunter; Editing by Stephen Coates)