Trump tariff speculation impacts USD ahead of key US inflation data

Currency markets are positioning cautiously ahead of US CPI data, with traders weighing potential inflationary impacts from proposed Trump administration tariffs. The dollar index consolidated near 105.80 as markets anticipate inflation surprises that could reshape Federal Reserve policy expectations. Speculation about renewed trade tensions has increased volatility in commodity-linked currencies, with oil and natural gas futures showing significant moves that could feed into inflation metrics. Market consensus expects core CPI to remain elevated at 3.4% year-over-year, but tariff implementation could push readings higher in coming months. GBP/USD traded defensively around 1.2750 as traders balanced UK economic concerns against US inflation risks. The potential for upside inflation surprises has shifted rate cut expectations, with markets now pricing only two Fed cuts for 2025. Technical levels show dollar pairs at critical junctures ahead of the data release.