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14/02/2023

Investing.com - The U.S. dollar retreated in early European trade Tuesday ahead of the latest readout of U.S. consumer inflation, while the yen gained upon the nomination of the next governor of the Bank of Japan.

At 02:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 103.028.

The dollar has traded in something of a holding pattern over the last few days as traders awaited the release of the latest U.S. consumer price index, which could provide further clues on the Federal Reserve's policy outlook.

The U.S. central bank earlier this month raised interest rates by 25 basis points, tempering the pace of its rate hikes, but the bank’s policymakers were keen to say that the fight against inflation continues and further increases should be expected.

Attention thus turns to today’s January inflation report, with the headline number expected to show that consumer prices rose at an annual pace of 6.2% in January, down from 6.5% in December and well below June's four-decade peak of 9.1%.

That said, markets are also wary of any potential bigger-than-expected surprises in core inflation, which excludes volatile energy and food prices, as the labor market remains strong, potentially powering wage growth.

Elsewhere, USD/JPY fell 0.3% to 132.04, following the nomination of Kazuo Ueda to be the next governor of the Bank of Japan.

Ueda, a former BOJ policy board member but currently an academic, was not seen as being anywhere close to the top job before speculation started swirling late last week.

Thus, he is seen as something of an outsider who is not necessarily committed to the central bank’s current ultra-easy policy.

That said, data released earlier Tuesday showed Japan's economy rebounded much less than expected in the fourth quarter, climbing 0.6% instead of the expected 2.0%, after falling a revised 1.0% in the July-September period.

EUR/USD traded 0.2% higher at 1.0737, ahead of the release of the latest iteration of growth data for the region.

The European Commission lifted its economic forecasts for the EU on Monday, saying the bloc will likely dodge a recession thanks in part to a dip in gas prices.

GBP/USD rose 0.2% to 1.2161, after the release of the latest U.K. labor data showed a drop of almost 13,000 in the claimant count in January, suggesting the labor market remains strong despite the country’s economic difficulties.

AUD/USD edged 0.1% higher to 0.6972, while USD/CNY fell 0.1% to 6.8158, with the yuan benefiting from the dollar's weakness.

14/02/2023

The index has traded in a relatively tight range this week as traders digest economic data and try to parse speeches from a series of Fed policymakers for clues of the likely future pace of the Federal Reserve's rate hikes.

The number of Americans filing new claims for unemployment benefits increased more than expected last week, rising for the first time in six weeks, but remained historically low.

And thus it’s the inflation portion of the Federal Reserve’s dual mandate which is dominating thinking as far as monetary policy is concerned.

Fed Chair Jerome Powell took a fairly dovish stance in a speech earlier this week, reiterating his belief that disinflation was underway, but his Fed colleagues have tended to express their desire for further rate hikes as the week has progressed.

Federal Reserve Bank of Richmond President Thomas Barkin was the latest to comment on Thursday.

“With demand slowing but still resilient, labor markets healthy and the added and unfortunately enduring shock of the war in Ukraine, it shouldn’t be a surprise that inflation — while likely past its peak — is still elevated,” Barkin said. “That, of course, is what makes the case for us to stay the course.”

This brings next week's U.S. CPI data, due on Tuesday, firmly into focus, as it will shed further light on whether disinflation is well and truly underway.

Elsewhere, EUR/USD traded 0.1% lower at 1.0726, USD/JPY largely unchanged at 131.59, and the risk-sensitive AUD/USD fell 0.2% to 0.6923.

GBP/USD fell 0.1% to 1.2105 after data released Friday showed U.K. gross domestic product fell 0.5% on the month in December, however GDP was unchanged in the fourth quarter, meaning the country's economy just avoided entering a technical recession after falling 0.3% in the July-September quarter.

USD/CNY rose 0.3% to 6.8013 after data showed consumer price inflation grew less than expected in January, while producer price inflation fell further during the month.

China’s economy is trying to recover from three years of restrictive COVID policies, and these numbers suggest it still faces a long road to reaching pre-pandemic levels of growth

14/02/2023

At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 103.640, not far removed from last Tuesday's high of 103.96, the strongest level since Jan. 6.

Tuesday sees the release of the latest U.S. consumer price index, which is expected to show that monthly rates ticked up in January, but the annual measures declined.

Traders appear to be favoring the greenback protectively ahead of the CPI report, after revisions to the previous data set showed consumer prices rose in December instead of falling as previously estimated. Friday’s University of Michigan survey also showed a one-year inflation outlook above January’s final number.

A strong inflation print could force markets to rethink whether the Fed will actually cut rates this year, particularly after the strong jobs report earlier in the month.

The dollar has also benefited from its safe haven status as the U.S. shot down a fourth object over North America over the weekend, raising fears of further geopolitical tensions after a Chinese spy balloon was shot down last week.

Elsewhere, USD/JPY climbed 0.6% to 132.13, with the yen handing back a lot of Friday’s gains after speculation linked academic Kazuo Ueda to the role as the next governor of the Bank of Japan.

Ueda had been seen as something of an outsider who could change the central bank’s current ultra-easy policy, but this optimism has been diluted ahead of Tuesday’s announcement after he expressed support for the central bank's current position.

EUR/USD traded flat at 1.0675, not far removed from Monday’s five-week low of 1.0656. The European Commission is set to release quarterly economic forecasts for the euro area on Wednesday, and the Eurozone is to release revised GDP data on Tuesday.

GBP/USD fell 0.1% to 1.2049, remaining weak after data released Friday showed that while the U.K. narrowly avoided a technical recession in the final quarter of 2022, gross domestic product still fell 0.5% on the month in December.

USD/CNY rose 0.3% to 6.8299, with speculation mounting that the Chinese authorities will further ease monetary policy to try and generate growth as the country emerges out of its strict anti-COVID measures.

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