USD risk skewewd to the uupside ahead of CPI report

The last jobs report is still in everybody’s mind as it had some unexpected consequences. Indeed, the upside surprise in wage growth triggered last week equity sell-off and send equity volatility through the roof. The January CPI figures, which are due for release this afternoon at GMT 13:30 pm, will be highly scrutinized as a better-than-expected read could potentially trigger another equity sell-off.

The headline CPI is expected to rise 1.9%y/y following an increase of 2.1% in December. Market participants anticipate the core CPI to increase 1.7%y/y for January following a rise of 1.8% in the previous. It would not be surprising to see a stronger reading in headline CPI, thanks to a surge in energy prices. Regarding the core measure, it is unlikely that the cost of rental accommodation and healthcare accelerate further in January. Finally, the persistent weakness in the greenback could give an extra boost to US prices. On a trade-weighted-basis, the dollar fell more 3% just in January, following a decrease of 1.2% in November and 1.1% in December.

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During the Asian session, the US dollar stayed on the back foot, as investors don’t know where to stand ahead of the release. We think that the risk is significantly skewed to the upside as investors remain mostly short USD.

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