Dollar flat after in-line to marginally soft U.S. consumer inflation report

The U.S. dollar on Wednesday remained flat after key inflation data came in slightly soft to in-line with expectations. Still, overall safe haven demand remained elevated amid escalating tensions between Washington and Tehran.

At 08:40 ET (12:40 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major peers, was unchanged at 99.90, hovering near a two-month high hit earlier this week.

U.S. inflation on tap

The headline U.S. consumer price index (CPI) rose 0.5% M/M in May, government data showed. On a Y/Y basis, headline CPI ticked up 4.2%. Economists had expected an increased of 0.5% M/M and 4.2% Y/Y. 

Core CPI, which strips out food and energy, gained 0.2% M/M in May and 2.9% Y/Y, compared to estimates of growth of 0.3% and 2.9%, respectively.

The greenback has consolidated near recent highs after climbing to its strongest level in almost two months on Monday. A combination of resilient economic data, persistent inflation pressures and heightened geopolitical uncertainty has bolstered the dollar’s traditional safe-haven appeal.

The rally gained momentum after a stronger-than-expected May employment report effectively sidelined expectations for imminent Fed rate cuts. The dollar’s advance has pushed the Japanese yen USD/JPY beyond the psychologically important 160-per-dollar level and increased pressure on other major currencies, including the Canadian dollar USD/CAD.

"The dollar can continue to edge higher as the U.S. macro backdrop of improving labor demand and sticky inflation back a more restrictive Fed policy stance," said Elias Haddad, global head of markets strategy at Brown Brothers Harriman.

U.S.-Iran tensions escalate

Iran said on Wednesday it had targeted U.S. bases in Jordan and several Gulf states in response to President Donald Trump’s decision to order strikes on Iranian military sites near the Strait of Hormuz.

The latest escalation followed a brief bout of optimism on Tuesday after Iran and Israel signaled a pause in hostilities, fueling a short-lived relief rally across global markets. That has since faded as investors reassess the risk of a prolonged conflict in a region that remains central to global energy supplies.

Currency markets were relatively subdued. The euro EUR/USD and British pound GBP/USD each edged up around 0.1%.