Dollar, yields soar on surprise strong US inflation report

USD ratchets through 150 JPY, AUD, NZD, EMFX tumble

Summary

The Greenback strengthened through the 150 Yen mark for the first time since November 2023 after US January Inflation increased 3.1% annually, beating estimates at 2.9%. At the close of trade in New York, USD/JPY was up at 150.85 against 149.25 previously.

The surprisingly strong Inflation report increased speculation that the US Federal Reserve will be forced to keep interest rates at 20-year highs for several more months.

US Treasury Yields soared. The 10-year rate rose to 4.31% (4.18%) The 2-year US bond yield climbed to 4.65% from 4.48%. Other global yields rose but to a lesser degree than US rates.

The Euro (EUR/USD) tumbled 0.61% to 1.0705 (1.0783 previously) while Sterling (GBP/USD) was pounded lower to 1.2585 from 1.2625. The USD/CHF pair jumped 1.34% to 0.8877 from 0.8750.

The Dollar Index (USD/DXY), which weighs the value of the Greenback against a basket of six major currencies climbed 0.75% to 104.90 (104.07).

Antipodean and Emerging Market Currencies plummeted against the US Dollar. The Australian Dollar plunged 1.25% to 0.6447 (0.6525 previously). New Zealand’s Kiwi slumped to 0.6050 from 0.6150. The USD/SGD pair (Dollar-Singapore) rallied 0.55% to 1.3520.

Other economic data released yesterday saw the UK’s Claimant Count Change (change in the number of people claiming unemployment benefits) ease to 14.1K against forecasts at 15.2K.

Britain’s Unemployment Rate fell to 3.8% from 4.2%, beating economist’s forecasts at 4.0%. Bank of England Governor Bailey is scheduled to speak before the House of Lords Economic Committee today.

Germany’s ZEW Sentiment Index climbed to 19.9 from 15.2 previously, beating expectations at 17.4. The US January Core CPI (m/m) climbed to 0.4% from 0.3%, beating estimates at 0.3%.

USD/JPY – the yield sensitive Japanese Yen weakened past the 150 JPY mark, finishing at 150.85 from 149.25 previously. In choppy trade the Greenback opened at 149.30 before ratcheting higher as US rates climbed. Overnight high traded was 150.87.

AUD/USD – The Aussie Battler plummeted lower against the overall stronger Greenback to finish in New York at 0.6447 (0.6525 previously). The AUD/USD pair traded to an overnight high at 0.6535 before tumbling lower as the Greenback strengthened.

EUR/USD – The shared currency retreated against the US Dollar to 1.0705 from its opening at 1.0783. In volatile overnight trade, the Euro rallied to an overnight high at 1.0797 before tumbling lower.

GBP/USD – Sterling was pounded lower against the broad-based stronger US Dollar to 1.2585 in late New York from 1.2625 previously. The British Pound initially soared to an overnight high at 1.2687 before tumbling lower.

On the lookout

Asian markets will still be slow with China away today, celebrating its Spring Festival today. Data-wise, New Zealand kicks off with its Food Price Index for January (y/y f/c 4.4% from 4.8% - ACY Finlogix). The UK starts off Europe with its UK January Retail Price Index (m/m f/c -0.1% from 0.5%; y/y f/c 5.1% from 5.2% - ACY Finlogix). This is followed by the UK January Inflation Rate (m/m f/c -0.3% from 0.4%; y/y f/c 4.2% from 4.0% - ACY Finlogix). The Eurozone follows with its Eurozone December Industrial Production (m/m f/c -0.2% from -0.3%; y/y f/c -4.1% from -6.8% - ACY Finlogix), Eurozone GDP Growth Rate (q/q f/c 0.0% from -0.1%; y/y f/c 0.1% from 0% - ACY Finlogix) and finally Eurozone Employment Change (q/q f/c 0.2% from 0.2%; y/y f/c 1.1 from 1.3% - ACY Finlogix). The Bank of England

Trading perspective

Every yield tells a story. With US treasury yields soaring to November 2023 highs, expect the Greenback to stay bid against its rivals. Traders in Asia today will focus on Japan and any comments from Japanese officials. With the USD/JPY pair close to the 151 level, we can expect verbal intervention from Japanese officials today. Intervention from Asian central banks are possible today as well given the slide in some Asia-EMFX pairs.

The Dollar Index finished well above its recent resistance level at 104.60, at 104.90. Look for that level, 104.60 as immediate support. A break above 105.00 could see the DXY test 105.20 next. A break below 104.60 could see the Greenback down to 104.20-40. Watch those US bond yields for clues to the next moves.

USD/JPY – the Greenback saw an overnight high at 150.88 before settling at 150.85 in late New York. Look for immediate resistance today at 151.00 followed by 151.30. On the downside, look for immediate support at 150.30, 150.00 and 149.70. A clean break through 150.30 could see 149.70 or lower. Expect verbal intervention from Japanese officials today. Real intervention will see fireworks. Interesting times for the Yen.

AUD/USD – the Australian Dollar felt the sting of broad-based US Dollar strength, tumbling to 0.6447 finish in New York. On the day, look for immediate support at 0.6440 followed by 0.6410 and 0.6380. On the topside, look for immediate resistance at 0.6480, 0.6530 and 0.6560. Expect the Aussie to trade in a choppy 0.6430-0.6530 range today.

(Source: Finlogix.com)

EUR/USD – the Euro plummeted to 1.0705 close in New York from 1.0783 previously. On the day, look for immediate support in the EUR/USD pair at 1.0700 followed by 1.0670. On the topside, immediate resistance can be found at 1.0740, 1.0770, and 1.0800. For today, look for the Euro to trade in a likely range between 1.0680-1.0780. Trade the range.

GBP/USD – Sterling slid against the US Dollar to finish at 1.2585 in New York against 1.2625 previously. On the day look for immediate support in the British Pound at 1.2570 (overnight low traded was 1.2575). Immediate resistance can be found at 1.2620, 1.2650 and 1.2680 (overnight high traded was 1.2687. Look for Sterling to trade in a likely range today between 1.2570-1.2720. Prefer to buy dips.

Happy Wednesday all. Have a good trading day ahead.