Dollar Stabilizes as Inflation Softens and Trade Tensions Ease

The U.S. dollar stabilized after its largest drop in weeks, as lower-than-expected inflation supports Federal Reserve rate easing amid cooling trade tensions. Despite recent downturns, analysts forecast short-term dollar gains, though not reaching early year levels. Global managers show a significant underweight position in the dollar.

The U.S. dollar stabilized on Wednesday following its most significant decline in over three weeks after softer U.S. consumer inflation data increased the likelihood of the Federal Reserve easing rates amid cooling global trade tensions.

The Labor Department reported a modest 0.2% rise in the consumer price index for the past month, falling short of economists' expectations for a 0.3% increase, which bolstered prospects for easing inflationary pressures. Prospects for U.S. trade improved last week after an agreement with Britain and a temporary truce with China in their ongoing tariff conflict.

While President Trump hinted at potential deals with India, Japan, and South Korea, Commonwealth Bank of Australia's analysts predict a near-term 2-3% rise in the dollar, despite challenges like erratic U.S. policy possibly damaging the dollar's safe-haven status. Federal Reserve rate cuts remain speculative as traders await developments.

(With inputs from agencies.)