The U.S. dollar traded steadily on Wednesday after staging a sharp rebound from recent four-year lows, while the euro edged lower following the release of key inflation data from the eurozone.
By 11:54 ET (16:54 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — was up 0.3% at 97.69. The index has gained more than 1% since the nomination of Kevin Warsh as the next head of the Federal Reserve.
Dollar shrugs off soft labor data
The dollar’s recent strength was underpinned by Warsh’s nomination to succeed current Fed Chair Jerome Powell. Markets expect Warsh to adopt a more hawkish stance, including efforts to shrink the Federal Reserve’s balance sheet.
Attention has now shifted to whether Warsh will secure Senate confirmation and how his leadership could shape U.S. interest rate policy once Powell’s term ends in May. A brief U.S. government shutdown had little impact on the dollar after lawmakers approved additional funding, although it delayed the release of key employment data due later this week.
Traders also largely brushed off a weaker-than-expected ADP payrolls report for January released on Wednesday, suggesting confidence in the broader resilience of the U.S. labor market.
Euro dips despite softer inflation
In Europe, the euro slipped modestly, with EUR/USD trading 0.1% lower at 1.1802, even after preliminary data showed eurozone inflation cooled more than expected. Consumer prices in the bloc eased to an annual rate of 1.7% last month, down from 2% in December and comfortably below the European Central Bank’s 2% target.
The data did little to alter expectations that the European Central Bank will keep interest rates unchanged at 2% for a fifth consecutive meeting. ECB policymakers have previously warned that the euro’s rapid appreciation against the dollar could further dampen inflation pressures.
The single currency touched a four-and-a-half-year high of 1.2084 against the dollar last week. According to Thierry Wizman, global FX and rates strategist at Macquarie, the euro is being pulled in opposing directions. While falling inflation could open the door to policy easing in 2026 and weigh on the currency, improving growth prospects and a more supportive political backdrop in key economies such as France and Germany could provide offsetting support.
Sterling also weakened, with GBP/USD down 0.3% at 1.3657, ahead of a Bank of England policy decision on Thursday, where rates are widely expected to remain unchanged.
Yen weakens as election uncertainty looms
In Asia, the Japanese yen remained under pressure, with USD/JPY rising 0.5% to 156.55, close to a two-week high. The currency has softened after comments from Prime Minister Sanae Takaichi raised doubts about whether authorities would intervene to support the yen.
Markets are now focused on a snap lower house election scheduled for February 8, with Takaichi’s party expected to secure a strong result that could strengthen her grip on parliament.
Elsewhere, the Chinese yuan edged slightly weaker, with USD/CNY at 6.9415, near its strongest level since mid-2023. The Australian dollar fell 0.4% to 0.6988 after rallying in the previous session, following a hawkish interest rate hike by the Reserve Bank of Australia, which also raised its growth and inflation forecasts.
