Dollar Holds Gains as In-Line US CPI Bolsters Fed Rate-Cut Expectations

The US dollar maintained its recent gains on Wednesday after consumer price index (CPI) data came in line with expectations, reinforcing the view that the Federal Reserve may cut interest rates later this year.

The CPI rose 0.3% month-over-month in January, matching the consensus forecast, while the annual rate held steady at 3.1%. Core CPI, which excludes volatile food and energy prices, increased 0.4% on the month and 3.9% year-over-year.

The data suggests that inflation is gradually cooling but remains above the Fed's 2% target. This has led market participants to adjust their expectations for the timing and pace of potential rate cuts, with futures markets now pricing in a roughly 60% chance of a rate cut at the June meeting.

Currency analysts noted that the in-line CPI print reduces the likelihood of an imminent Fed pivot, supporting the dollar's yield advantage. 'The data doesn't change the fundamental narrative of gradual disinflation, but it does push back on aggressive rate-cut bets,' said Jane Doe, a senior currency strategist at a major bank.