US Dollar retreats as December CPI reveals mild inflation rise

• Lingering economic uncertainties drive traders to revisit growth forecasts, spurring cautious positioning across major currency pairs.
• Softer-than-forecast inflation prints spark questions over the Federal Reserve's next move, compelling markets to reassess rate expectations.
• Benchmark Treasury yields tumble from recent peaks, highlighting market jitters following the latest inflation figures.

The US Dollar (DXY) turns this week into a firm loss, eking out more weakness on Wednesday. The US December CPI release arrived a bit softer than predicted, fueling speculation about the Fed's path ahead. The US Dollar Index, which measures the value of the USD against a basket of currencies, snaps below 109.00 and could accelerate its downside from here.

Daily digest market movers: US Dollar remains soft after CPI data

• Headline CPI for December climbed by 2.9% YoY, undershooting some market whispers of a stronger result.
• Core CPI rose by 3.2% over the same period, stepping down from November's pace as monthly core inflation printed at 0.2%.
• The CME FedWatch Tool implies that investors have priced in a hold this month, consistent with a data-dependent stance.
• Yields crumble: The 10-year note slips to around 4.65% from Monday's 14-month high, reflecting diminished inflation expectations and lighter risk premium.
• Regional surveys point to mixed economic activity with some districts reporting subdued expansion while others see a mild pullback.
• Tariff talk remains a wildcard as some districts worry new policy changes might introduce an upside inflation risk, complicating the Fed's job.

DXY technical outlook: Mild setback near multi-year highs

The US Dollar Index slid below the 109.00 threshold as traders locked in gains following softer inflation readings. Despite the pullback, the broader uptrend remains intact near multi-year peaks with the 20-day Simple Moving Average repelling sellers.