The dollar index initially strengthened after January CPI rose 0.5%, exceeding forecasts of 0.3%, while core CPI increased 0.4%. Annual inflation hit 3.0%, above the expected 2.9%, pushing Treasury yields up 7-10bps. However, Fed Chair Jerome Powell urged caution, and Atlanta Fed President Raphael Bostic cited tariff uncertainty as a complicating factor for rate cuts. The dollar reversed losses after President Donald Trump announced he had spoken with Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy about peace talks, boosting EUR/USD above its 21-day moving average to 1.0429.

Euro Rises as Trade Concerns Linger

The euro gained for a second session, with EUR/CHF breaking above its 200-DMA at 0.9485. However, Trump’s trade advisers are reportedly considering reciprocal tariffs, clouding sentiment. The Bank of England’s Megan Greene emphasized a gradual rate-cut approach, keeping GBP/USD in check ahead of UK GDP data.

Yen Surges as Yields Climb, Risk Sentiment Shifts

USD/JPY posted its strongest daily gain since December, surging 1.20%, but gains slowed near 154.80 resistance. The Treasury curve steepened by 2bps to +26.3bp, reflecting shifting market sentiment.

Equities Slip as Commodities Show Mixed Performance

• S&P 500: Fell 0.30%, weighed by energy sector losses.
• Oil: Plunged 2.5% on rising yields and U.S. stockpile growth.
• Gold: Inched up 0.1%, while copper surged 2.1% on supply concerns.

Currency Market Recap: Yen and Euro Lead Gains

• EUR/USD: Up 0.27%, benefiting from peace talk optimism.
• USD/JPY: Rose 1.20%, tracking higher yields.
• GBP/USD: Dipped 0.03%, consolidating ahead of UK GDP data.
• AUD/USD: Down 0.16%, pressured by cautious sentiment.
• Cross-Pairs: EUR/JPY up 1.49%, GBP/JPY 1.21%, and AUD/JPY 1.06% as yen crosses surged on rising yields.

Outlook: Key Data and Geopolitical Risks to Drive Volatility

Markets remain on edge ahead of Thursday’s PPI, UK GDP, and BOJ’s corporate price data, with inflation trends, trade policy, and peace talks dictating near-term volatility.