On Wednesday, the U.S. dollar saw a significant increase following the release of consumer price data indicating a higher-than-anticipated rise in January.

This development has led to expectations that the Federal Reserve may maintain elevated interest rates for an extended period to address persistent inflationary pressures.

The headline consumer price index (CPI) experienced a 0.5% increase in January, surpassing the 0.3% rise that economists had forecasted. Similarly, the core index, which excludes volatile food and energy prices, climbed by 0.4%, exceeding the predicted 0.3% increase. These figures contribute to a year-over-year headline CPI gain of 3.0%, which is above the anticipated 2.9%, while core prices have ascended at an annual rate of 3.3%, also surpassing the forecast of a 3.1% rise.

In response to the inflation report, the dollar index, which measures the greenback against a basket of six major currencies, was up 0.52% to 108.49. Concurrently, the euro dropped 0.42% against the dollar, trading at $1.0317. The dollar’s strength was also evident in its performance against the Japanese yen, with a 1.19% increase to 154.3 yen.

The implications of the inflation data have also been felt in the interest rate futures market, where traders have adjusted their expectations. They are now pricing in a mere 26 basis points of rate cuts by December, a decrease from approximately 37 basis points anticipated prior to the data release. This suggests that traders are now expecting only one 25 basis point rate cut for the remainder of the year.