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The euro gained against the dollar, touching a one-week high of 1.0440 before retracing slightly. Optimism over a potential peace agreement in Ukraine provided a lift to the single currency. However, concerns remain about the broader geopolitical landscape, particularly the absence of European leaders in ongoing discussions.
Adding to the dollar’s challenges, former U.S. President Donald Trump’s comments about upcoming reciprocal tariffs sparked uncertainty. While trade tensions historically support the dollar as a safe haven, traders remain cautious about the potential inflationary effects of new tariffs.
Fed Rate Cut Expectations Remain a Key Factor
Despite inflation data running hotter than expected, markets still anticipate rate cuts later this year. Fed Chair Jerome Powell reiterated that while inflation is not yet at the Fed’s 2% target, the central bank is in no rush to adjust policy. Futures markets currently price in around 29 basis points of rate cuts by year-end, down from 37 basis points before the CPI release.
Additionally, Citi analysts expect the core PCE index to rise just 0.22% in January, down from 0.45% in December. If confirmed, this would bring the annual inflation rate down to 2.5%, reinforcing expectations that inflation pressures are cooling, albeit gradually.
Technical Outlook: Key Levels to Watch
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