Dollar Edges Higher as CPI and U.S.–China Tensions Dominate Markets
The U.S. dollar moved slightly higher on Thursday as traders weighed renewed trade tensions between Washington and Beijing, while keeping a close eye on the upcoming U.S. inflation report.
At 03:50 ET (07:50 GMT), the U.S. Dollar Index—which tracks the greenback’s performance against six major currencies—rose 0.1% to 98.805, recovering after sharp losses recorded last week.
Safe-Haven Dollar Gains Amid Trade Concerns
The dollar, often seen as a safe-haven asset, edged higher as investors grew cautious over the fragile state of U.S.–China relations. Market sentiment weakened after reports suggested President Donald Trump’s administration may impose new restrictions on software-driven exports to China, including laptops, jet engines, and advanced tech components.
According to Reuters, this move follows Beijing’s recent rare earth export restrictions—a key escalation in the ongoing economic standoff between the world’s two largest economies.
Trump and Chinese President Xi Jinping are expected to meet in South Korea next week. While Trump remains optimistic about progress, he acknowledged that the meeting is not yet guaranteed.
U.S. Sanctions Boost Oil and the Dollar
In another geopolitical development, the U.S. president announced **new sanctions on Russia’s top oil producers—Lukoil and Rosneft—**citing Moscow’s failure to commit to peace efforts in Ukraine. The sanctions triggered strong gains in crude oil prices, which are denominated in dollars, providing short-term support for the greenback.
However, ING analyst Francesco Pesole cautioned that the dollar’s strength remains limited:
“The move has merely unwound October’s losses so far. We’d likely need to see Brent heading toward $70 a barrel to offer tangible support for USD.”
CPI Data Could Be the Next Dollar Catalyst
Despite the ongoing U.S. government shutdown, the September Consumer Price Index (CPI) is expected to be released on Friday, over a week late. Analysts say the inflation report could be the next major catalyst for dollar movement.
Pesole added:
“The dollar’s rebound seems to be losing momentum. We’d need a hawkish inflation surprise to sustain gains. Any hot CPI print could offer good support to the dollar.”
Euro and Pound Slip as Dollar Holds Firm
In Europe, the euro (EUR/USD) fell 0.2% to 1.1592, reacting to the White House’s new sanctions on Russia. ING analysts said the 1.160 level may act as a short-term anchor if Friday’s U.S. CPI data fails to strengthen the dollar narrative.
The European Central Bank (ECB) meets next week, but with inflation hovering near its 2% target, no major policy changes are expected.
Meanwhile, the British pound (GBP/USD) slipped to 1.3351 after inflation data showed consumer prices holding steady at 3.8%, missing expectations for a rise to 4.0%.
Yen Weakens as Japan’s New PM Takes Office
The Japanese yen (USD/JPY) traded 0.4% higher at 152.58, marking a nine-day high for the dollar. Japan’s new Prime Minister Sanae Takaichi, viewed as a fiscal dove, is expected to loosen monetary and fiscal policy, adding pressure on the yen.
Still, the Bank of Japan has signaled it will continue raising rates if growth and inflation remain aligned with forecasts. Japan’s September CPI data, due Friday, will be closely watched ahead of the late-October BOJ meeting.
Yuan, Aussie, and Kiwi Move Mixed
The Chinese yuan (USD/CNY) traded slightly lower at 7.1229, supported by a series of strong midpoint fixes from the People’s Bank of China.
Trade tensions resurfaced midweek after reports that Washington may impose fresh export curbs in response to China’s rare earth restrictions.
Elsewhere, the Australian dollar (AUD/USD) gained 0.3% to 0.6506, while the New Zealand dollar (NZD/USD) rose 0.1% to 0.5746, benefiting from a softer U.S. dollar tone in the Asia-Pacific region.
