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Markets Soar as CPI Falls After Nearly 3 Years

Markets took a dovish hint from the latest inflation figures from the US, where monthly headline CPI change fell the most for the first time since April 2020. FOMC member Harker commented after the results suggesting growing support for a mere 25bps hike at the next meeting. The dollar fell, and counterparty currencies rose to end the session positive as risk appetite shifted.

Chart: USD/JPY

Key Factors for Today:

• US headline and core inflation data match expectations


• Chances for 25bps in February increase after CPI


• BOJ intervenes weeks after change in yield curve control band


• ECB expects recession, but for it to be shallow


• EIA cannot stop surprising with stockpiles, now on gas

Dollar down 0.92% after inflation matched expectations

US inflation took a modest retreat in December, with the largest decline since April 2020, due to a big drop in gasoline prices. Shelter costs saw another sharp gain, up 0.8%, with the Fed likely to diversify focus from the core as they matched expectations.

The US Dollar index fell 0.92%, allowing risk assets to jump higher. 101.20 is the next major support for DXY. On the other hand, gold hit an 8-month high at $1900, where it faces stiff resistance.

BOJ intervened twice overnight, adding to Yen’s strength

The BOJ announced unscheduled bond buying twice to stop the rise of JGB yields and defend the new yield curve control bound. The JGBs traded as high as 0.53% at some point, prompting the bank to intervene by buying 10-year. The bank also announced it would review side effects of monetary policy at next week’s meeting.

The move sent an already bleeding USD/JPY down some 0.25% during the early Asian session, adding to the 2.25% drop from Thursday’s plummeting and breaking the 130.00 handle. The pair has the next support at 127.00.

EUR/USD 1% higher despite ECB expecting shallow recession

Staff projections from the ECB show the Euro area is expected to experience a short and shallow recession at the turn of the year; consumer inflation expectations declined, and growth expectations rose. EUR/USD was up nearly 1% on Thursday, breaking past $1.08, with the next resistance at $1.09 on the back of a weaker dollar. The bulls must defend the support for further upside.

EIA surprises again, this time with Natural gas stockpiles

On the heels of the surprising growth in crude, the EIA reported a surprise build in natural gas inventories of 11B cf, compared to expectations of a drawdown between 15-20B cf. This sent Natural gas futures lower on Thursday to end the session with a 1.35% loss. The energy remains near multiyear lows, with further releases from SPR not ruled out.

On the docket

• UK GDP


• German GDP


• EU Industrial Production


• Fed Harker Speech


• Michigan Consumer Sentiment (Prel)

FX 1-day relative performance (USD)

• Swiss franc and Kiwi biggest losers vs USD, 0.45% and 0.36% down


• Pound and loonie lose 0.16% and 0.18% against greenback


• Yen only winner, with 0.11% gain to the dollar


• Euro and Aussie also 0.13% and 0.12% lower


• Silver plunges 0.95%, but gold nearly unchanged


• Crude 0.22% lower, but brent extended down 0.35%

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