EUROPEAN FX UPDATE: DXY lower ahead of US CPI, GBP resilient in the wake of soft inflation metrics, JPY leads

USD: DXY -0.2%; 109.02

• DXY lower, largely as a by-product of JPY strength in the run up to US CPI data. On which, headline US CPI is expected to rise +0.3% M/M in December, matching the November reading; Y/Y CPI is expected to rise to 2.9% Y/Y from 2.7%. Core CPI is expected to rise +0.2% M/M (prev. +0.3%), Y/Y expected to remain unchanged at 3.3%. The release follows hot on the heels of yesterday's softer-than-expected outturn for PPI which has left market pricing expecting the next 25bps cut in September and a total of 32bps of easing by year-end. Note, today's speaker slate includes Fed’s Barkin, Kashkari, Williams & Goolsbee. That being said, Fed actions are not the only story in town for the USD with markets also assessing the potential impact of Trump tariff plans. On which, reports via WaPo suggest that some of Trump's backers are getting "exasperated" by the reports he's going to dial them back. For now, DXY is just above the 109 mark with a session trough @ 108.96.

EUR: EUR/USD U/C; 1.0310

• EUR flat vs. the USD as EZ-specific drivers remain light aside from various ECB commentary. On which, ECB's de Guindos has been on the wires noting that the disinflation process is well on track. However, the high level of uncertainty calls for prudence in setting rates. That being said, given that a 25bps cut by the ECB on January 30th is so widely priced in, price action for the pair is likely to be dictated by the USD leg of the equation with US CPI data due on today's docket. EUR/USD is currently treading water above the 1.03 mark vs. yesterday's 1.0238 low. The next upside target comes via the 9th Jan high @ 1.0321.

JPY: USD/JPY -0.7%; 156.88

• JPY the clear outperformer across the majors following comments from BoJ Governor Ueda who said the BoJ will raise rates and adjust the degree of monetary support if improvement in the economy and price conditions continues, while he added that he wants to discuss and decide whether to raise rates at next week's policy meeting. As it stands, the odds of a 25bps hike are @ 69% vs. 48% seen at the start of the week. USD/JPY has slipped onto a 156 handle for the first time since 6th January; current YTD trough sits @ 156.23.

GBP: GBP/USD +0.1%; 1.2219

• GBP marginally firmer vs. peers following soft UK inflation metrics which saw Y/Y CPI print @ 2.5% vs. Exp. 2.6%, core Y/Y 3.2% vs. Exp. 3.4%, services 4.4% vs. exp. 4.9% and MPC 4.7%. Typically, such a soft outturn would trigger more pronounced softness in GBP. However, given concerns surrounding the UK's fiscal position, the subsequent pullback in yields has been seen as a positive for the domestic economy. Price action for the GBP was relatively choppy with a brief dip in Cable followed by the pair returning to a 1.22 handle and venturing as high as 1.2241; this move eventually faded. Pricing for the BoE moved in a more dovish direction with odds of a 25bps cut in February advancing to 85% from 62% and a total of 50bps priced by year-end vs. 35bps pre-release. Note, BoE's Taylor is due to speak @ 16:30GMT.

Antipodeans: AUD/USD +0.1%; 0.6200. NZD/USD +0.2%; 0.5613

• Both marginally firmer vs. the USD alongside a quiet antipodean calendar. AUD is now up for a third session in a row after printing a multi-year low on Monday @ 0.6130. To the upside, the next target comes via the 9th Jan high @ 0.6216 with the current YTD peak @ 0.6301. Similar price action for NZD/USD with the pair now up three sessions on the bounce after printing a multi-year low on Monday @ 0.5541. NZD/USD currently sits just below yesterday's 0.5631 peak.

15 Jan 2025 - 10:15- ForexData- Source: Newsquawk