USD: CPI outcome to guide rate repricing – MUFG

FXStreet Insights Team FXStreet

MUFG’s Senior Currency Analyst Lloyd Chan notes that the US Dollar stayed firm after stronger US nonfarm payrolls but lacked sustained upside as markets doubt how much further US rates can reprice in a hawkish direction. He highlights that January US CPI is now the key catalyst, with any upside surprise needed to drive renewed hawkish repricing and Dollar gains.

CPI surprise needed to lift Dollar

"Stronger-than-expected US nonfarm payrolls have helped ease some near-term market concerns about a sharp deterioration in the labour market, but the data did little to meaningfully shift the broader macro narrative. The US dollar held firm following the nonfarm payrolls report, yet failed to generate sustained upside momentum, reflecting market skepticism about how much further US rates can reprice in a hawkish direction."

"Focus now shifts squarely to the US CPI release later today, which is likely to be the next key catalyst for rates and FX markets. Our US strategist expects January core CPI to rise by 0.25%mom and 2.6%yoy, with base effects providing a notable lift to the annual print. Bloomberg consensus, by comparison, looks for 2.5%yoy for both headline and core CPI."

"From a market perspective, CPI would likely need to exceed market expectations to trigger a renewed hawkish repricing of the Fed rate path. Conversely, an outcome broadly in line with consensus, or softer, should allow markets to maintain expectations for around two Fed rate cuts this year, containing dollar upside."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD back to 1.3250, down modestly for the day

GBP/USD now comes under fresh downside pressure and recedes toward the mid-1.3200s on Tuesday, partially reversing the optimism seen at the beginning of the week. Meanwhile, Cable’s bearish tone follows the resumption of the upside traction in the Greenback, always amid the sharp rally in USD/JPY.

EUR/USD off tops, back to 1.1400

EUR/USD now loses some momentum and recedes from the area of recent daily tops, revisiting the 1.1400 neighbourhood in the latter part of Tuesday session. The pair’s daily decline comes in response to the resurgence of some buying interest in the US Dollar.

Gold clings to daily gains beyond $4,000

Following multi-month lows near $3,950, Gold now manages to regain some composure and reclaim the area beyond the key $4,000 yardstick per troy ounce on Wednesday. Still, any meaningful recovery appears limited as a broadly firmer US Dollar and rising US Treasury yields weigh on the yellow metal.

Ripple defends critical support, Stellar extends recovery

Ripple (XRP) trades around the key $1.00 psychological level, consolidating as the token awaits its next directional catalyst. Stellar (XLM) extends its recovery above $0.178 after posting modest gains at the start of this week.

Why a hawkish Bank of Japan could trigger the next Bitcoin sell-off

The Japanese Yen hits a 40-year low of 162.00 against the US Dollar, raising concerns about intervention or additional rate hikes by the Bank of Japan. BoJ may sell US Treasuries to buy back Yen, potentially pushing US bond yields higher and making Bitcoin less attractive to investors.

Kevin Warsh isn't expected to say much in Sintra: That's exactly why markets will listen

Financial markets could find an important catalyst in the enchanting, fairytale-like landscape of Sintra this week. The ECB Forum will, as it does every year, gather the crème de la crème of central banks. The new boss at the Fed, who has clearly said that the Fed should stop explaining everything, will need to talk – and traders should listen.