US dollar declines as US inflation slows
Financial markets witnessed a decline in global stock indices and the value of the US dollar on Thursday, as investors assessed the recent US inflation report and the fragile trade agreement between the United States and China, amid escalating geopolitical tensions in the Middle East and continuing fears about the impact of tariffs on the global economy.
The US-China trade agreement raises investors caution
Trade talks between Washington and Beijing have been the focus of markets ' attention this week, as the negotiations resulted in a framework agreement to lift Chinese restrictions on exports of rare metals, as well as allowing Chinese students to study at US universities.
US President Donald Trump called the deal great, expressing his happiness with its results.
However, market reactions remained conservative, as investors are waiting for clearer details on the terms of the agreement, especially in light of Trump's recent statements in which he indicated that the US administration will send letters over the next two weeks to dozens of countries setting new conditions for commercial transactions, leaving the choice for these countries between acceptance or rejection.
It seems that the markets may have to deal with Trump's escalatory policy of imposing tariffs, even if its goal is simply to put pressure on trading partners to negotiate.
These volatile policies have caused significant turmoil in global markets this year, prompting many investors to abandon US assets, including the dollar, for fear of their negative repercussions on prices and economic growth.
The US dollar index is at the lowest level since April
The US dollar continued its decline to reach its lowest levels since April 22, as the dollar index (DXY), which measures the currency's performance against a basket of six major currencies, has fallen by 9% since the beginning of the year so far.
The decline was partly due to US inflation data released on Wednesday, which came in below expectations, despite previous fears that tariffs would accelerate inflation.
Analysts point out that the full effect of the fees has not yet appeared, expecting its effects to begin to manifest more clearly during the second half of the year.
Recent inflation data also reinforced expectations of the Fed cutting interest rates this year, with markets expecting a full-fledged cut in October, with a high probability that it will happen in September.
Expectations of a temporary improvement of the dollar
Investors are waiting for the US producer price index (PPI) data today, where the annual core index is expected to show stability at 3.1%, while the monthly index is expected to rise to 0.3% after recording -0.4% in the previous reading.
If the data comes out better than expected, the dollar may get temporary support, giving it a chance to catch its breath after weeks of decline.
