Dollar surges towards 200-SMA as Treasury yields jump

Rising US Treasury yields and subdued risk appetite gave a bid to the world’s premier reserve currency.

Some of the majors dropped through key levels with EUR/USD falling below 1.09, AUD/USD breaking the 0.66 handle and USD/JPY pushing up past 147.

Comments by a Fed official provided broad support as markets reassessed the aggressive rate cut pricing for this year.

Governor Waller pushed back against expectations for as many as six rate cuts in 2024 as he downplayed the need to rush policy easing.

That’s more than twice as much as the central bank signalled in December.

Today’s disappointing China data is also helping underpin support for the dollar, as stock markets look like struggling again today.

Weakness in Chinese asset markets could continue as overnight data showed new property prices were falling at their fastest monthly rate since 2015.

Eyes on US Retail Sales

Markets get to see how the all-important US consumer is faring with higher interest rates and still elevated inflation, with today’s release of the December retail sales data.

Solid figures at least matching the prior month are expected with the holiday shopping season bolstered by a strong Cyber Week.

Signs that consumers may be pulling back spending activity might undermine the expectation of an economic soft landing, whereas strong data could see the dollar extend recent gains.

The Dollar Index is currently trading around its 200-day simple moving average at 103.46.

GBP rises on stronger than expected CPI

Sterling jumped this morning on the back of a surprise pickup in inflation data. The headline rate rose for the first time in 10 months, increasing to 4% from 3.9% in November. That was its lowest in more than two years.  

Core inflation remained steady above 5% while services inflation, an important input for the Bank of England to determine underlying price pressures, rose.

Markets still price in above a 50% chance of the first rate cut coming in May.

Inflation is expected to get closer to the BoE’s 2% target by the summer as food and energy prices are forecast to decline further

GBP/USD dipped to the bottom of its recent 1.26/1.2828 range before the UK data today.

The midpoint of the summer downtrend sits at 1.2589 with the 50-day SMA just above here at 1.2601 as additional support.