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Forex Today: US Dollar collapses amid Fed seen hiking rates by 25 bps from now on

What you need to take care of on Friday, January 13:

Financial markets spent the first half of the day extending their previous consolidative phase, finally exploding with the release of the United States Consumer Price Index (CPI). The US CPI rose at an annual pace of 6.5% as expected in December, while core price pressures were up by 5.7%, in line with the market forecast. On a monthly basis, inflation contracted 0.1%, while the core reading met expectations, up 0.3%.

Signs of easing price pressures in the world’s largest economy coupled with comments from US Federal Reserve officials.

The first one was US Federal Reserve  Bank of Philadelphia President Patrick Harker, saying that “the worst of the inflation spike is likely past now,” adding that the time of super-sized rate hikes has passed, and it’s time to switch to 25 basis points (bps) increments. The Greenback sunk with his comments as Wall Street soared, although volatility dominated the American session.

Then, St. Louis Federal Reserve leader James Bullard spoke and noted that the most likely scenario is inflation remaining above 2%, so the policy rate will need to be higher for longer. Finally, Richmond Federal Reserve President Thomas Barkin said that it "makes sense" to steer more deliberately as the Fed works to bring inflation down.

Market ignored other positive news, but were there to support the optimism. During Asian trading hours, the Bank of Japan (BoJ) announced it would investigate the consequences of its ultra-easy policy. Market players read it as a potential shift in the central banks’ monetary policy. Additionally, China re-started imports from Australian coal, after banning them in the early stages of the COVID-19 pandemic. Later in the day, market talks suggested the United Kingdom and the Euro Zone will start talks to end the Brexit clash and reach a final deal.

The EUR/USD pair trades around 1.0840, while GBP/USD stands at 1.2210, not far below fresh multi-month highs. Commodity-linked currencies also rallied, with AUD/USD now changing hands at 0.6970 and the USD/CAD pair down to 1.3350. Finally, USD/JPY hovers around 129.30, after bottoming at a fresh multi-month low of 128.86.

Spot gold flirted with the $1,900 level, ending the day at around $1,896 a troy ounce. Crude oil prices were also up, with WTI settling at $78.70 a barrel.

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Valeria Bednarik

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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