Forex today: dollar and rates higher, inflation and Central Banks in focus

Forex today in the US was risk-on, while the focus on desks entering NY was around the BoJ's reduction in bond purchases that was a major mover overnight along with China’s central bank’s apparent loosening of its currency management. 

However, heads quickly turned back to the dollar that ended the session 0.2% higher with the benchmark UST 10yr yield breaking up through psychological 2.5% level and the highest in ten months.

Oil was an early mover adding to the flavour of higher inflation and certainty that the FOMC will vote to hike again as soon as March. Fed fund futures priced the chance of another rate hike in March at 65%. Most US indices making fresh record highs (S&P500 +0.4%).

EUR/USD opened near 1.1930 in NY, balancing on a knife edge after a hard fall overnight but held with the 1.1915/35 range for most of the North American session against a solid EZ economic backdrop. Sterling was capped again at 1.3580 for a triple top but was supported at 1.3504 above the 10-DMA at 1.3502. (The cross finished up at 0.8814 and down -0.06%).  USD/JPY focus stayed with the BoJ trimming of buying in super-long JGBs by Y10 bn to Y190 bn leading to taper talk, but not enough conviction to a test of the 112.20 support level and the pair consolidated the overnight supply from the 113.30's, bouncing off 112.36 to 112.77 and settling in for a close of 112.60.

High-beta FX weaker again on DXY strength and the commodity currencies had the Aussie drop from 0.7860 to 0.7808 while  NZD fell from 0.7197 as being a three-month high to 0.7163. The Loonie was unable to capitalise on the spike in oil prices and traded on the offer vs the greenback between 1.2397 the low and 1.2478 the high, closing at 1.2462.

Key events ahead 

Analysts at Westpac offered their outlooks for today's key risk events as follows:

"China: Dec CPI is expected to tick up to 1.9%yr after slowing in Nov to 1.7%yr. Dec financing and new loans data are scheduled to be released between the 10th and the 15th.

UK: Nov industrial production was flat in Oct but manufacturing activity has been solid in 2017, benefitting from the earlier depreciation in the GBP and the global growth upswing.

US: Fedspeak involves Evans in Lake Forest and Bullard in St Louis on the economy and policy outlook."

Key notes from US session

• Crypto Today: Bitcoin struggles to stay above $15K, Ethereum extends gains
• Wall Street continues to climb higher as healthcare and financials lead
• US: Job openings edge down again - Wells Fargo
• Fed's Kashkari: U.S. has to deal with rising fiscal deficit over the longer term
• Fed's Kashkari: Inflation is going to continue to be too low