The U.S. dollar was marginally lower on Friday, as traders slightly upped their bets for further Federal Reserve interest rate cuts after a cooling in consumer inflation.
At 14:30 ET (19:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% to 96.87. It was on course for a third weekly loss in four.
Subscribe to InvestingPro for more foreign exchange analysis January CPI moderates The focus on Friday was squarely on the consumer price index report for January.
Headline CPI rose 2.4% Y/Y in the first month of 2026, lower than the consensus of 2.5% and decelerating from December’s 2.7% reading. The headline number also came in lower than anticipated on a M/M basis. Core CPI was in-line on both a M/M and Y/Y basis.
JPMorgan believes the CPI print hinted at a gradual cooling in the personal consumption expenditures (PCE) price index - widely seen as the Federal Reserve’s preferred gauge of inflation.
"Based on today’s data release, we are tracking a 0.26%m/m rise in core PCE prices for January (2.9%oya). This tracking estimate will be updated once the January PPI data are released. Recall that, due to last year’s federal government shutdown, the December PCE data release has been delayed. We continue to track a 0.37%m/m rise (3.0%oya) for December," JPMorgan’s Michael Hanson said.
"In contrast to the CPI, these estimates suggest a more gradual cooling in core PCE inflation, which in our view is likely to contribute to the Fed remaining on hold for some time," he said.
"Given the inertia in underlying inflation measures and the continued risk for greater tariff pass-through to lift inflation for a time this year, we would expect the FOMC to be somewhat more responsive to downside surprises in the labor market—which was not the case in the strong January employment report earlier this week—than to near-term softness in inflation," Hanson added.
The dollar took some support earlier in the week from the blowout January nonfarm payrolls report, but remains under pressure from growing uncertainty over U.S. monetary policy, especially in the wake of Kevin Warsh’s nomination as the next Chairman of the Federal Reserve.
Euro little changed after growth data In Europe, EUR/USD was flat at 1.1870. A flash estimate of GDP growth for the fourth quarter showed a 0.3% rise in both the Eurozone and the European Union.
"The second Q4 GDP print remained unchanged at 0.3% QoQ, above the ECB’s estimate of 0.2%. It’s worth noting that Eurostat’s flash estimate did not incorporate December’s hard data," Deutsche Bank analysts led by Michael Kirker said in a research note.
"Industrial Production (IP) for December is now expected to be quite soft. In principle, this could exert some downward pressure on the final Q4 GDP growth. However, give the GDP print is a ’strong’ 0.3%, it has some buffer against the weak IP data," they added.
GBP/USD was up 0.2% to 1.3648, and is on track for slight weekly gains following the release of soft fourth-quarter growth data as well as renewed UK political turmoil.
