Cooling Inflation Eases Dollar Pressure Amid Interest Rate Speculations

The dollar weakened against major currencies following lower-than-expected inflation data, suggesting the Federal Reserve might cut interest rates twice this year. With Donald Trump returning to the White House, analysts predict policy changes impacting growth and inflation. The Japanese yen strengthened, while the British pound saw relief due to falling inflation.

The dollar pared some losses against major peers on Wednesday but remained weaker as softer-than-expected inflation data increased the likelihood of Federal Reserve rate cuts this year. The Bureau of Labor Statistics reported a 2.9% rise in consumer prices through December, aligning with economists' predictions.

The softer core inflation reading triggered a dollar decline, as its index fell 0.1% at 109.07, though it reached a 26-month high earlier in the week. With Donald Trump's return to the White House, analysts anticipate policy shifts that could boost growth and inflation pressures.

Meanwhile, the yen strengthened following remarks from Bank of Japan's Governor on potential interest rate hikes. The pound found relief in cooling inflation, offering a lift amidst a previous market downturn. In Europe, the euro faced pressure, while Israel's shekel rose following a Gaza ceasefire.

(With inputs from agencies.)