US dollar hits 3-month high on strong inflation data, surpasses 150 yen mark

The US dollar surged to three-month highs on Tuesday, propelled by robust inflation data that exceeded economists' expectations for January.

According to Reuters, the Consumer Price Index (CPI) reported a 0.3 per cent increase on a monthly basis, surpassing the 0.2 per cent forecast.

Year-on-year, the CPI rose by 3.1 per cent, exceeding the estimated 2.9 per cent growth.

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These figures reinforced market expectations that the Federal Reserve would maintain interest rates steady in March, boosting the dollar's strength.

"The key message from today's CPI is that it's slowing but less than expected," Dec Mullarkey, Managing Director at SLC Management in Boston told Reuters.

He highlighted that the reading supported the Fed's decision to await further assurance that inflation remained contained.

As a result, the dollar index surged to a three-month high of 104.95, indicating a strong performance against a basket of major currencies.

It was last up 0.7 per cent at 104.89, poised for its most substantial one-day gain since early February.

The greenback's rally extended beyond inflation data, surpassing 150 yen for the first time since November.

Analysts noted that the yen, which had depreciated over 6 per cent against the dollar this year, faced persistent pressure amid revised expectations of the Federal Reserve's monetary policy.

The dollar's strength against the yen prompted speculation of potential intervention by Japanese officials to stabilise the currency.

Market analysts emphasised the market's response to the inflation data, with Federal funds futures indicating no rate cut in March and a lower than 50 per cent probability of easing in May.

Expectations aligned with the Fed's projections, suggesting around three rate cuts this year, as reflected in the "dot plot" released in December.

Analysts anticipate reduced volatility in the market as expectations align with the Fed's forecasts.

In addition to the dollar's surge, the euro depreciated by 0.6 per cent to $1.0707, reaching its lowest level since mid-November.

Meanwhile, in the cryptocurrency market, bitcoin touched $50,383, its highest level since December 2021, before dipping below $50,000 following the CPI data release.

Despite this, bitcoin has experienced an 18 per cent increase this year, supported by regulatory approvals for US-listed exchange-traded funds.

Looking ahead, economists anticipate the US retail sales report, scheduled for Thursday.

Recent forecasts suggest a potential decline of 0.1 per cent for January, following a 0.6 per cent rise in December.

(With inputs from Reuters)