U.S. Dollar Rallies on Upbeat CPI and Firm Fed Stance

U.S. Dollar Rallies on Upbeat CPI and Firm Fed Stance

The U.S. Dollar surged, bolstered by a robust U.S. Consumer Price Index (CPI) report, defying expectations of falling below the crucial 102 level in the Dollar Index (DXY). Throughout the week, the currency faced pressure with bets favoring rapid disinflation. However, the latest inflation figures supported the Federal Reserve’s decision to maintain interest rates and await more data before considering rate cuts. This economic climate has influenced market participants looking to buy US dollars.

Market Recap: CPI Figures Unleash Market Dynamics

At 13:30 GMT, the U.S. CPI report revealed unexpected data. The headline CPI rose from 0.1% to 0.3% monthly and from 3.1% to 3.4% yearly, exceeding expectations. The core CPI held steady at 0.3% monthly, with the yearly figure surpassing estimates at 3.9%, against the anticipated 3.8%. The Greenback responded positively, reversing disinflation bets and early Federal Reserve rate cut expectations, making it a suitable time for those looking to buy dollars online.

Concurrently, the Jobless Claims data contributed to the market narrative. Initial Jobless Claims, expected to rise to 210,000, remained at 202,000, with the previous week revised up to 203,000. Continuing Claims, forecasted to increase to 1,871 million, unexpectedly fell to 1,834 million.

U.S. equity markets reacted unfavourably to the CPI report, with major U.S. indices declining by over 0.50%. European equities also closed in negative territory. The CME Group’s FedWatch Tool indicated a 97.4% probability of the Federal Reserve maintaining interest rates at its January 31 meeting, with a 2.6% expectation for an initial cut.

The benchmark 10-year U.S. Treasury Note climbed above 4% to 4.04%, as traders sold bonds anticipating steady rates for at least three more months. This financial landscape affects those holding 100 dollar bills or dollar coins as part of their investment strategy.

USD Technical Analysis: Navigating the Path Ahead

The U.S. Dollar Index’s technicals highlight a scenario of ‘buy the rumor, sell the fact.’ Expectations for accelerated disinflation and early 2024 rate cuts led to significant unwinding bets. The USD’s robust performance and U.S. rates’ resilience contrasted with a temporary drop in equities.

Looking forward, the USD faces key resistance at 103.00, aligning with the trend line from October 3 and December 8. A breach and close above this level could aim for the 200-day Simple Moving Average (SMA) at 103.43, followed by the 55-day SMA at 103.78. Conversely, a rejection at the descending trendline may signal a downturn, with 101.74 as a critical support level, potentially testing the low near 100.80.

Dollar Maintains Stability Amidst Ambiguous Inflation Data

On Friday, the U.S. Dollar held steady against major currencies, showing stability following an ambiguous U.S. Consumer Price Inflation report. Although the monthly and yearly CPI figures exceeded expectations, the dollar index remained firm at 102.25. The market continues to assess the CPI data against the likelihood of a March rate cut by the Federal Reserve.

Traders are pricing in a 73.2% chance of the Fed’s first 25 basis point cut in March amid ongoing debates among Fed officials. Despite the data disparities, the U.S. Dollar Index, slightly down from Thursday’s high of 102.76, significantly outperformed its December low of 100.61, indicating cautious market sentiment.

The euro stayed around $1.0977, sterling at $1.2776, and the Japanese yen around 145.11 per dollar. U.S. Treasury yields eased to about 3.98%, aiding the yen’s stability. The offshore yuan remained flat at 7.170, while the Taiwan dollar stayed unchanged ahead of critical presidential and parliamentary elections in Asia.