The U.S. dollar stabilized on Wednesday, holding steady after recent losses as traders awaited more key inflation data. The Dollar Index traded around 98.910, recovering from a brief dip following December’s core CPI report. That report showed a 0.2% monthly rise, slightly below forecasts, which briefly fueled speculation about Federal Reserve rate cuts.

Despite the softer inflation reading, the dollar quickly rebounded, a move analysts at ING attribute to unchanged pricing for Fed policy. The currency also found support after Fed Chair Jerome Powell received backing from global central bankers. This show of solidarity came after the Trump administration threatened criminal charges over Powell’s testimony regarding headquarters renovations, raising concerns about the central bank’s independence.

Meanwhile, the Japanese yen slumped to its lowest level in 18 months against the dollar, pressured by expectations of expansionary fiscal policy under Prime Minister Sanae Takaichi. Investors are pricing in large stimulus packages that could increase government debt and delay tighter monetary policy from the Bank of Japan, a dynamic dubbed the "Takaichi trade."