Dollar struggles to post gains; yen suffers from weak growth data

The U.S. dollar edged marginally higher Monday, struggling to make much progress in holiday-thinned trade after soft inflation data boosted the case for more Federal Reserve rate cuts later in the year.

At 03:55 ET (08:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 96.860, after dropping 0.8% last week.

Liquidity has been hit Monday with markets in the U.S. and large parts of Asia, including China, closed for a holiday.

Hard-won dollar gains  

U.S. inflation data released on Friday showed U.S. consumer prices increased less than expected in January, offering room for the U.S. central bank to resume cutting interest rates later in the year, especially with Kevin Warsh likely to become Chairman of the Federal Reserve in May.

That said, last week’s jobs data painted a reasonably healthy picture of the strength of the U.S. labor market, suggesting little urgency for the Fed to resume cutting rates any time soon.

Futures imply 62 basis points of additional easing priced for the rest of this year. The next cut is likely in June, with markets assigning 68% odds to a reduction.

“The past couple of weeks have shown that the improvement in the U.S. macro picture isn’t enough to bring the dollar back to early January levels,” said analysts at ING, in a note. 

“The mid‑January ‘sell America’ episode is leaving lasting damage on the greenback – much like in summer 2025. Last week’s post‑payrolls reaction confirmed that confidence hasn’t returned: strong data, hawkish repricing, but only a short‑lived and modest dollar rally.”

There is more economic data to digest this week, including weekly ADP jobs numbers on Tuesday, FOMC minutes on Wednesday, and most importantly core PCE for December and 4Q GDP on Friday.

Euro has downside risk  

In Europe, EUR/USD traded 0.1% lower to 1.1861, ahead of the release of December industrial production data for the Eurozone later in the session.

Data released late last week showed the Eurozone economy expanded by 0.3% in the final quarter of 2025, increasing at an annual rate of 1.4%. 

“The Eurozone calendar becomes more interesting this week, with ZEW tomorrow and PMIs on Friday. We are quite upbeat on these surveys, but the euro impact isn’t likely to be major,” ING said.

“We continue to look past our short-term valuation estimates that point to meaningful downside risk for EUR/USD, given recent price action that points to persistent buy‑the‑dip behaviour. Still, we see a break below 1.180 as more likely than a move to 1.20 this week.”

GBP/USD traded marginally higher to 1.3653, with sterling struggling to post gains as political uncertainty remains.

“Political noise has eased somewhat, but PM Keir Starmer is still seen as vulnerable, with betting markets assigning roughly a 70% chance he will step down by the end of June,” ING said. “The pound should continue to face depreciation episodes whenever Starmer’s political position deteriorates.” 

There are also a number of important U.K. economic data releases due this week, including the January jobs report on Tuesday and inflation numbers for the same month on Wednesday.