Introduction to the US Dollar’s Recent Performance
The US dollar has been under pressure against the euro and pound sterling, but it has steadied as markets absorbed the fallout from the Powell investigation and US inflation cooled slightly in December. The current exchange rates are:
- Pound to Dollar (GBP/USD): 1.3451 (+0.19%)
- Euro to Dollar (EUR/USD): 1.16474 (+0.05%)
- Dollar to Japanese Yen (USD/JPY): 158.8295 (-0.23%)
Powell Investigation Shock Quickly Fades
This week’s market action has been heavily US-focused, with attention centered on reports that Federal Reserve Chair Jerome Powell is under criminal investigation for alleged perjury. The reaction was swift, with the US dollar, bonds, and equities all selling off sharply in early trading. However, the unease did not last long, as senior Republican figures publicly questioned the investigation and warned about its implications for financial markets and institutional credibility.
Support for Powell also came from overseas, with the European Central Bank and other major central banks issuing a rare show of solidarity, emphasizing the importance of central bank independence for financial stability. By the end of Monday’s session, most of the initial moves had reversed, with US equities recovering to make fresh highs, while bond markets clawed back early losses.
US CPI Offers Little New Direction
Attention quickly shifted to Tuesday’s US inflation release, which reported that headline Consumer Price Index inflation rose 2.7% year on year in December, unchanged from the previous month. Core CPI showed a modest cooling, rising 0.2% on the month, slightly below the 0.3% many economists had forecast, while the annual rate held steady at 2.6%, matching a four-year low.
Shelter and food costs remained the main drivers of price pressures, rising 0.4% and 0.7% respectively during the month. Energy prices helped offset some of the increase, with gasoline prices falling sharply on an annual basis. Markets reacted calmly, with US stock indices little changed following the release, and Treasury yields remaining steady.
Tariffs Back in Focus
With inflation largely priced in, market attention may soon turn back to politics, as investors watch closely for a long-awaited Supreme Court ruling on the legality of US tariffs. A ruling against the tariffs is generally seen as positive for markets, although it could trigger short-term volatility and political uncertainty. President Trump has already warned that such a decision would be highly disruptive, adding another layer of risk to an already eventful start to the year.
Conclusion
In conclusion, the US dollar has steadied after initial pressure due to the Powell investigation and US inflation cooling slightly in December. The Powell investigation shock has quickly faded, with support from senior Republican figures and overseas central banks. The US CPI release offered little new direction, with markets reacting calmly to the news. As market attention turns back to politics, investors will be watching closely for the Supreme Court ruling on US tariffs, which could trigger short-term volatility and political uncertainty. Overall, the US dollar remains on the softer side, consistent with a broader trend extending from late 2025.
