The US dollar is steady on Thursday after hitting multi-week lows in the wake of a weak US inflation report, which again put the focus back on the Fed’s rate cuts.

Dollar on downtrend after key inflation data

The dollar continued to slide after the latest US inflation data prompted expectations that the Federal Reserve would likely make two interest rate cuts this year, most likely starting in September.

On Wednesday, the consumer price index rose by 0.3 percent from April, below the 0.4 percent estimate, signaling relief for markets after the earlier tightness in consumer prices led to a sharp decline in rate cut bets and stirred fears of further hikes.

Treasury yields also fell to six-week lows, affected by the data, while traders scrutinize the Fed’s potential direction for monetary policy.

Later in the day, several Fed spokespersons are scheduled to speak, but investors likely require tangible evidence that the outlook for rate cuts will change significantly going forward.

Euro moves away from highs

In Europe, the EUR/USD loses about 0.1% to 1.0867, with the euro losing slightly on the day after reaching its highest level since 21 March.

All indications suggest that the European Central Bank will begin reducing interest rates from record highs starting in June. Markets are now anticipating up to three rate cuts this year, with the additional cuts likely in September and December.

GBP/USD dropped about 0.1% to 1.2675, reversing some of the previous day’s gains when it rose above 1.27 for the first time since April.

Although recent evidence of stronger-than-expected GDP growth could delay this, the Bank of England is expected to cut rates this summer from 16-year highs, possibly after the ECB makes its decision.

Yen makes modest gains amid weak GDP Data

USD/JPY is down 0.2% at 154.64, as the yen benefits from dollar weakness. However, the pair remains well above the levels seen in early May, during which the government intervened in the currency markets.

However, the yen’s recovery has slowed after gross domestic product data revealed that the Japanese economy contracted significantly more than expected in the first quarter, casting doubt on the Bank of Japan’s ability to further raise interest rates.

The USD/CNY exchange rate remains broadly unchanged at 7.2187, as sentiment towards China worsens following Washington’s decision to tighten trade tariffs on key Chinese industries, including electric vehicles, pharmaceuticals, and solar energy.