With year-to-date gains of 2.65%, the U.S. Dollar Index (DXY) is hovering at highs last seen in December. The annual revisions in CPI point toward a trend of moderating inflation. However, the latest batch of initial jobless claims came in a tad lower than the Street’s expectations.
Traders will now shift their gaze toward the upcoming January CPI print on Tuesday. The strong labor market could likely prolong the Fed’s wait-and-watch stance. Still, traders are largely anticipating two to three rate cuts, even as chances of rapid rate declines remain slim this year.
While New Zealand is expected to go for a rate hike this month, the Japanese central bank’s stance could continue to weigh on the Yen even as the country’s equity markets make new highs. Meanwhile, rate cuts in Mexico could potentially come sooner than anticipated. Hopes of a rate cut from the Bank of England are being dashed after comments from policymakers hinted at the need for more evidence of cooling inflation. Consequently, upcoming UK inflation numbers will be keenly watched.
As China goes through a massive deflation and a slump in its financial markets, the pressure on the Yuan could increase over the coming weeks. Amid these dynamics, the U.S. Dollar still has some legroom to gradually strengthen, at least for the next 2-3 months.
Source: TradingView
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