Inflation Data Sparks Brief Rally
The U.S. dollar moved toward its first monthly advance since October, supported earlier by stronger-than-expected wholesale inflation data before momentum faded into month-end trading.
Data showed the Producer Price Index for final demand increased 0.5% in January, exceeding forecasts of a 0.3% rise. The report initially lifted the greenback as investors reassessed inflation risks and the outlook for Federal Reserve policy.
“There’s a real deep unease in markets about inflation and growth so far in 2026,” said Adam Button, chief currency analyst at investingLive. He noted expectations for moderating inflation have yet to fully materialize in the data.
However, some analysts highlighted underlying moderation. Chris Low of FHN Financial pointed to trade services components within the PPI calculation that may overstate price pressure in real time.
Dollar Index Posts Monthly Advance
The dollar index, which measures the currency against a basket including the euro and yen, slipped 0.12% to 97.61 on Friday. Even so, it remains on track for a 0.47% monthly gain, ending a streak of losses since October.
The euro rose 0.18% to $1.1818 but is heading for a modest monthly decline of about 0.25%. Against the Japanese yen, the dollar eased 0.1% to 155.95, though it is still up nearly 0.78% for the month.
Fed Outlook and Geopolitical Factors
The Federal Reserve is widely expected to hold interest rates steady until at least June amid persistent inflation concerns. Futures markets are nevertheless pricing in roughly 62 basis points of rate cuts by year-end on worries about a softening labor market.
Safe-haven demand earlier in the session also supported the dollar amid tensions between the United States and Iran. While diplomatic discussions over Iran’s nuclear program showed some progress, uncertainty remains. Oil prices gained roughly 2% as traders monitored potential supply risks.
Market participants described trading activity as restrained overall, with investors balancing geopolitical developments and shifting tariff dynamics following last week’s Supreme Court decision on emergency tariffs.
Yuan Rally Pauses
The Chinese yuan paused after a 10-day rally as the People’s Bank of China announced it would remove certain foreign exchange risk reserve requirements on forward contracts. The adjustment was viewed as a step that could encourage demand for dollars.
Analysts said the dollar appears to be consolidating in the absence of a clear catalyst, with attention turning to upcoming economic releases and central bank guidance.
