Published by Global Banking & Finance Review®
Posted on February 13, 2025
3 min readLast updated: January 26, 2026
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The dollar fell as January's producer price report suggests lower core PCE inflation, impacting Federal Reserve expectations and rate cut predictions.
By Karen Brettell
NEW YORK (Reuters) - The dollar slipped on Thursday after components of January's producer price report indicated that core PCE inflation, the Federal Reserve's preferred inflation measure, is likely to be lower than previously thought when it is released later this month.
It came despite producer prices rising more than economists expected.
“There were some subcomponents in there that show that PCE might not be as hot as CPI suggested,” said Noel Dixon, global macro strategist at State Street Global Markets.
The producer price report came after Wednesday's Consumer Price Index for January was much higher than expected, leading traders to price in fewer rate cuts this year.
Futures traders are now pricing in around 31 basis points of cuts by December, up from around 29 basis points before Thursday's data, but down from 37 basis points before the CPI data was released on Wednesday.
The Personal Consumption Expenditures Price Index is due on February 28. Economists at Morgan Stanley revised their core PCE inflation expectation for January to 0.3%, from 0.4%, after Thursday's data.
The dollar index was last down 0.45% on the day at 107.40. The euro gained 0.5% to $1.0434. The Japanese yen strengthened 0.56% against the greenback to 153.56 per dollar.
The euro was also boosted on optimism that Russia and Ukraine could reach a peace deal.
U.S. President Donald Trump discussed the war in Ukraine on Wednesday in phone calls with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy, the new U.S. president's first big step towards diplomacy over a war he has promised to end.
After the initial boost for the single currency, further gains will likely depend on the details of any deal reached, said Dixon.
Meanwhile, the U.S. dollar remains attractive with the U.S. economy still growing well above trend, he said. U.S. tariffs and immigration restrictions in the U.S. are also likely to add to inflation, while tariffs could further dent growth in the euro zone.
“The overarching trend for the dollar is higher,” Dixon said.
Trump said he plans to unveil reciprocal tariffs on Thursday afternoon but gave no details about his latest tariff plan, which could take aim at every country that charges duties on U.S. imports.
Sterling gained after data showed that Britain's economy unexpectedly grew by 0.1% in the final quarter of last year. It was last up 0.57% at $1.2512.
In cryptocurrencies, bitcoin fell 1.44% to $96,272.53.
(Reporting by Karen Brettell; Editing by Ros Russell)
The article discusses the dollar's decline due to lower core PCE inflation expectations and its impact on Federal Reserve policies.
The euro gained 0.5% against the dollar, boosted by optimism over a potential Russia-Ukraine peace deal.
The dollar was affected by January's producer price report indicating lower core PCE inflation and higher-than-expected producer prices.
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