Dollar rebounds near one-month highs as CPI matches estimates

The U.S. dollar strengthened to near a one-month high as consumer price index data broadly matched market expectations, sharpening investor conviction that the Federal Reserve will leave policy rates unchanged at its Jan. 28 meeting. The Dollar Index was last up about 0.3% at 99.18 in early Asian trading, retracing losses from Monday and showing intraday variation that earlier had the index near 98.73.

Markets priced the result as confirmation that recent disinflation trends are intact enough to remove immediate pressure for further hikes. Fed funds futures implied a roughly 95.6% probability that the Fed will hold rates at its next meeting, leaving the central bank on a data-dependent path rather than a reactive course to political headlines. Currency crosses were broadly steady: the dollar traded around 6.9708 against the offshore Chinese yuan in Hong Kong, $0.6688 versus the Australian dollar, $0.5740 versus the New Zealand dollar, €1.1642 to the euro and $1.3423 to the British pound.

Political developments around the Fed added an unusual backdrop to the market reaction. Reports that President Donald Trump threatened Fed Chair Jerome Powell with a criminal indictment and that the administration opened a criminal investigation into Powell amplified scrutiny of central bank independence. Powell issued a public statement defending the Fed’s autonomy and saying policy decisions would be guided by economic data and the Fed’s mandate. Several current and former central bankers voiced public support for Powell, underlining a cross-party concern about preserving institutional independence.

The political noise did not translate into acute market stress. Volatility measures remained subdued with investors focused on data and central bank signals rather than rhetoric. Crypto assets saw modest gains alongside the dollar rally, with bitcoin climbing about 1.8% to roughly $95,752 and ether rising about 4.0% to $3,334, marking fresh two-month highs for bitcoin. Equity markets showed muted movement in early Asian hours as traders awaited upcoming Chinese trade data and a potential U.S. Supreme Court decision on the legality of emergency tariffs.

Analysts cautioned that political attacks on the Fed were less likely to move markets if inflation stays under control. “Indirect attacks on the Fed’s independence aren’t likely to roil the financial markets in the U.S., so long as inflation there remains under control,” said analysts at Capital Economics, reflecting a market preference for data over rhetoric.

For policy and markets, the immediate takeaway is clear: CPI that roughly matches expectations strengthens the case for policy stability. That stability keeps real interest rates relatively elevated, supporting the dollar and tempering risk appetite in emerging markets and for cyclical assets. Over the longer term, sustained progress on inflation will be the decisive factor for any renewed monetary easing or tightening. Until inflation dynamics change materially, markets are likely to continue treating macro data as the primary driver of Fed policy and asset allocation.