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Dollar Jumps After U.S. CPI Exceeds Expectations

Barchart - Tue Feb 13, 2:37PM CST

The dollar index (DXY00) on Monday rose by +0.71% and posted a 3-month high. The dollar rallied Tuesday after bond yields spiked higher on the stronger-than-expected U.S. Jan CPI report. The hawkish CPI report also pushed back expectations of Fed rate cuts.  Tuesday’s slump in stocks also boosted liquidity demand for the dollar. 

U.S. Jan CPI eased to +3.1% y/y from +3.4% y/y in Dec, stronger than expectations of +2.9% y/y. The Jan CPI report of +3.1% was 0.1 point above the 2-3/4 year low of +3.0% posted in June 2023.  Meanwhile, the Jan core CPI (ex-food and energy) of +3.9% y/y was unchanged from December’s 2-1/2 year low and was stronger than expectations of +3.7% y/y.

The markets are discounting the chances for a -25 bp rate cut at 11% for the March 19-20 FOMC meeting and at 41% for the following meeting on April 30-May 1.

EUR/USD (^EURUSD) on Tuesday fell by -0.66% and posted a 3-month low.  The euro on Tuesday gave up overnight gains and turned lower as the dollar jumped on the stronger-than-expected U.S. Jan CPI report.  The euro Tuesday initially moved higher after the German Feb ZEW survey expectations of economic growth rose more than expected to a 1-year high.

The German Feb ZEW survey expectations of economic growth rose +4.7 to a 1-year high of 19.9, stronger than expectations of 17.3.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on March 7 and 52% for the following meeting on April 11.

USD/JPY (^USDJPY) on Tuesday rose by +1.02%.  The yen on Tuesday tumbled to a 2-3/4 month low against the dollar.  The yen weakened after T-note yields shot higher on Tuesday’s stronger-than-expected U.S. Jan CPI report.  The yen also saw reduced demand as a safe haven after the Nikkei Stock Index rallied sharply Tuesday to a 34-year high.

Japan's Jan PPI rose +0.2% y/y, stronger than expectations of +0.1% y/y.

Japan Jan machine tool orders fell -14.1% y/y, the thirteenth consecutive month orders have declined.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 32% for its next meeting on March 19 and 71% for the following meeting on April 26.

April gold (GCJ4) Tuesday closed -25.80 (-1.27%), and Mar silver (SIH24) closed -0.613 (-2.60%).  Precious metals on Tuesday retreated, with gold falling to a 2-month low and silver sliding to a 3-week low.  Tuesday’s rally in the dollar index to a 3-month high hammered metals prices. Also, Tuesday’s stronger-than-expected U.S. Jan CPI report pushed back expectations of Fed rate cuts and is negative for precious metals.  In addition, higher global bond yields on Tuesday weighed on metals.  Gold remains under pressure from the ongoing long liquidation of gold by funds after long gold holdings in ETFs fell to a 4-year low Monday. 



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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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