The US Dollar's recent recovery appears to be short-lived as soft inflation data boosts bets on a dovish Federal Reserve. The US Dollar Index (DXY) saw a modest increase, reaching near 103.75 after the release of the Consumer Price Index (CPI) report, which indicated a cooling of inflationary pressures. The Canadian Dollar gained momentum following the Bank of Canada's (BoC) decision to cut its key borrowing rates by 25 basis points to 2.75%, aligning with market expectations.
The US CPI report revealed that year-on-year headline and core inflation decelerated more than anticipated, dropping to 2.8% and 3.1%, respectively. On a monthly basis, both headline and core CPI rose at a moderate pace of 0.2%, slightly below the estimates of 0.3%. This data has led to increased speculation that the Federal Reserve may adopt a more dovish stance in its monetary policy, putting pressure on the US Dollar.
The DXY had previously refreshed from a four-month low of 103.20, but the softer-than-forecast inflation data has made it challenging for the greenback to maintain traction. Despite the temporary recovery, the cooling inflationary environment is seen as unfavorable for the USD, with market participants adjusting their expectations accordingly.
In contrast, the Canadian Dollar has benefited from the BoC's policy decision. The central bank's rate cut was accompanied by a dismal economic outlook, yet it provided some support to the CAD. The improving risk mood following the US CPI data helped limit losses for the USD/CAD pair.
Furthermore, earlier this month, the US imposed 25% tariffs on Canada, citing the influx of drugs through borders as a concern. This move could potentially impact trade relations between the two countries, adding another layer of complexity to the currency dynamics.
In the cryptocurrency market, risk-off sentiment has ushered in a cooling-off period despite some of the top-ranked tokens by market capitalization maintaining their positions. This sentiment reflects broader investor caution amidst global economic uncertainties.