US dollar update

US dollar Summary

The US Dollar’s trend has been influenced by contrasting data from the Producer Price Index (PPI) and Consumer Price Index (CPI). The latest PPI report, indicating an unexpected 0.1% decline in December and a yearly increase of 1%, falls short of market expectations and contrasts with the CPI data. The CPI data showed an uptick in headline inflation, with the core rate rising by 0.3% month-on-month and slowing to 3.9% year-on-year, surpassing the consensus of 3.8%. The headline inflation acceleration from 3.1% to 3.4% year-on-year, against a consensus of 3.2%, suggests a stronger inflationary pressure than anticipated.

Despite these inflationary indications, the investing community appears to be overlooking these releases. The dollar’s strength, following the CPI data release, seems largely attributable to the negative response in equities rather than a direct result of inflation data. The US yield curve did not exhibit a significant reaction, as a brief selloff in 2-year Treasuries was quickly reversed after the CPI announcement.

On the geopolitical front, tensions in the Middle East have escalated with a UK-US task force launching an offensive against Houthi-controlled installations in Yemen. This development has led to a surge in energy prices, with both crude oil and natural gas experiencing an upward trend. The Houthi rebels’ threat of imminent retaliation against UK or US entities adds to the regional instability, further impacting the energy market.

Overall, the conditions for a higher dollar this month are apparent, but market reluctance to establish short-term bullish USD positions, combined with expectations of structurally lower US rates by year-end, indicates a likelihood of range-bound trading. This scenario may persist until there is more clarity from activity data and Fed communications


Market Views & Opinions

Latest report from Scotiabank regarding EURUSD mentions:

The EUR’s recent bull trend remains intact on the daily chart but trend support at 1.0925 today appears more vulnerable to attack as 1.10 is holding. Broader technical signals still suggest a major peak/reversal formed around the EUR’s peak above 1.11 around the turn of the year. Risks are tilted towards some further corrective weakness in spot towards the mid/upper 1.07s.

ING wrote about the dollar on 12/01/2024 “The conditions for a higher dollar this month are surely there, but we have observed numerous indications that markets remain reluctant to make short-term USD bullish positions coexist with the longer-lasting view that US rates will take the dollar structurally lower by year-end. The chances of rangebound trading until we receive clearer messages by activity data and the Fed are high.”



The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

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