The US dollar stabilized after a sharp decline from CPI data; the euro retraced some gains, falling

USD Remains Stable

The USD remained stable during the European trading session, having earlier dropped to a multi-week low on Thursday due to a relatively mild U.S. inflation report, which brought Federal Reserve rate hikes back into focus. The Dollar Index traded at 104.285 at 04:25 ET (08:25 GMT), up 0.1% from the previous day, after having fallen below 104 to a five-week low last night.

USD in a Weak Position After Key Inflation Data Release

The USD remained in a weak position following the latest U.S. inflation data release, which increased market expectations that the Federal Reserve will implement two rate cuts this year, likely starting in September. Wednesday's Consumer Price Index showed a 0.3% rise in April, below the expected 0.4% increase, relieving the market as sticky consumer prices in the first quarter had led to significant cuts in rate cut expectations and even sparked concerns about additional rate hikes. This data also led U.S. Treasury yields to drop to a six-week low as traders reassessed the potential path of the Fed's monetary policy.

Euro Retreats From Earlier Highs

In Europe, EUR/USD traded down 0.1% at 1.0867, slightly retreating after climbing earlier on Thursday to the highest level since March 21. The market widely expects the European Central Bank to start implementing rate cuts from record highs in June, with up to three cuts anticipated this year or two cuts after June, most likely in September and December.

Performance of Other Currencies

GBP/USD fell 0.1% to 1.2675, with the pound retracing some of the previous session's gains when it climbed above 1.27 for the first time since April 10. The yen rose 0.2% in Asian trading, reaching 154.64, benefiting from a weaker dollar, but the currency pair remains well above early May levels when the market saw government intervention in the currency. USD/CNY was largely flat at 7.2187, as sentiment towards China remains weak with Washington imposing stricter trade tariffs on key Chinese industries like electric vehicles, pharmaceuticals, and solar technology.