DXY consolidates at ~102.46 with eyes on US CPI

This is down to a mild reassessment of all the interest rate cuts expected by markets from the Fed in 2024, starting as soon as March.

Source: CME FedWatch Tool

Interestingly, we are hearing from more Fed officials who are now talking more openly about modest policy easing this year.

Yesterday, the New York Fed’s latest survey of consumer expectations showed inflation expectations fell to their lowest level in nearly three years.

Mixed data means choppy price action

Friday’s non-farm payrolls report gave us mixed signals about the world’s biggest economy.

The ISM Services data was more dovish with prices, new orders and employment all softer than predicted.

Going forward, it seems like markets could be more focused on worse than expected data than any upside surprises.

The big risk event of this week, US inflation released on Thursday, could see currencies move out of their current choppy and sideways trading ranges.

Focus will also be on a bunch of US bank earnings which kick off the fourth quarter results season.

The Dollar Index has had a series of similar closes over the past few sessions around 102.50.

If we ignore the wider ranges on the release of last week’s NFP data, generally the more prices contract, the bigger the eventual range breakout could be.

Yen outperforming after inline Tokyo CPI

Core inflation in Japan’s capital slowed for the second straight month in December but was in line with consensus estimates.

Tokyo CPI acts as a leading indicator for the national inflation data, which is due to be released next week.

Easing prices potentially take some pressure off the Bank of Japan to rush into an exit from its ultra-loose monetary policy.

A key part of the puzzle is higher wage growth and markets get an update overnight with November data.

More instructive will be the spring wage negotiations which could then move the dial for the BoJ to act more decisively.

USD/JPY spiked up close to 146 after the NFP data on Friday. But prices have turned lower since then, with support potentially seen at the 200-day simple moving average at 143.32.