Dollar rides Treasury yields higher as Trump's tariffs begin to bite
That pushed the dollar and bond yields higher as investors pared back expectations of Federal Reserve interest rate cuts this year.
The jump in the dollar was most apparent against the yen, as it knocked the Japanese currency to a four-month low of 149.03 overnight. The dollar last traded at 148.90 yen.
The euro and sterling similarly languished near three-week lows hit in the previous session, and last bought $1.1608 and $1.3394, respectively.
The tick up in U.S. prices of core goods "could be a sign that we're starting to see some inflationary pressure from tariffs creeping in" though it is too soon to tell "definitively", said Nathaniel Casey, investment strategist at Evelyn Partners.
"While this inflation report isn't especially alarming, the tick up in core goods, and the continued uncertainty around future tariff rates could still make the Federal Reserve and (Chair Jerome) Powell hesitant to want to cut rates," said Casey.
Traders are now pricing in roughly 43 basis points worth of Fed easing by December, down from just above 50 bps at the start of the week.
U.S. Treasury yields stayed elevated on Wednesday, with the benchmark 10-year yield scaling a one-month top of 4.4950%.
The two-year yield steadied at 3.9503%, having risen about 6 bps in the previous session.
That kept the U.S. dollar supported against a basket of currencies, as it hovered near a one-month high at 98.60.
Elsewhere, the Australian dollar edged 0.02% higher to $0.6517 after falling 0.45% on Tuesday. The New Zealand dollar rose 0.17% to $0.5955. Also weighing on investors' minds was the prospect that Powell's eventual successor could be someone more inclined to lower interest rates, potentially fuelling price rises. Trump has railed against Powell for months for not easing and repeatedly urged him to resign. On Tuesday, Trump said cost overruns on a $2.5 billion renovation of the Fed's Washington headquarters could amount to a firing offence.
"The additional unwanted attention on Powell has given some credence to the notion that we could see his early departure and an early nomination from Trump," said Molly Schwartz, cross-asset macro strategist at Rabobank. In trade, Trump on Tuesday said the U.S. would impose a 19% tariff on goods from Indonesia under an agreement with the Southeast Asian country and that more deals were in the works. He also said letters notifying smaller countries of tariff rates would be sent soon, and that his administration would likely set a tariff of "a little over 10%" for those countries. (Reporting by Rae Wee; Editing by Christopher Cushing)
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