The United States Dollar is trading a bit softer against most of its G10 peers this morning after losing some of its recent steam during the afternoon session yesterday.
Overview
Moving in typical inverse fashion, equities managed to stage a bit of a rebound yesterday and Treasury yields ticked a bit lower. The Buck, however, is still hovering just off its year-to-date highs which places it near its strongest point since November of 2022 according to the Dollar Spot Index. This morning the US Producer Price Index, the precursor to tomorrow’s Consumer Price Index, showed producers’ costs grew less than expected last month at 0.2% on expectations of 0.4%. Core prices excluding food and energy were flat in December, and the annualized price growth for producers was also softer than expected at 3.3%.
Reports on the incoming Trump administration’s trade policy plans helped turn the tide for the Dollar – overnight, Bloomberg reported that several key incoming members of Trump’s team are considering implementing proposed tariffs in a more gradual manner in order to open the floor for international negotiations and try to mitigate the potential inflationary impact of these policies. These reports have not been confirmed or denied by Trump himself, except via a spokesperson pointing to previous commentary from the former and incoming President that tariffs are a top priority. Important to note, however, is that even this more gradual proposed tariff scheme is still implying universal tariffs that stretch toward the most expensive tariff regime that is possible under the President’s executive authority. As such, the slight move weaker for USD may be fairly short-lived and could be unwound through next week following the new President’s inauguration on Monday.
Still to come tomorrow morning is December’s CPI release, and traders are prepping for the most volatility off of an inflation reading since the regional bank crisis of March 2023. Options pricing implies as much volatility for tomorrow’s release as it does for the Fed’s next meeting on January 29th. It’s likely that trading will be quite choppy through these data releases and Trump’s inauguration next week.
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What to Watch This Week…
- UK CPI, Wednesday
- US CPI, Wednesday 8:30AM
- UK GDP, Thursday
- US Retail Sales, Thursday 8:30AM
- Monex USA Online is always open
GBP ⇓
Pound Sterling once again finds itself at the bottom of the G10 board, trading a third of a percent weaker against USD after attempting to stage a comeback yesterday afternoon. Key UK inflation data is due out tomorrow morning a few hours before the US releases December’s CPI, a double whammy day that could keep Sterling’s negative momentum going. There is potential for a stickier inflation print given traditional holiday spending in December, but this is also the case in the US so any positive momentum GBP could gain off such a reading will have to be confirmed at 8:30AM when the US figures come out. The UK also will see GDP figures Thursday morning, another major risk event given the nation’s sluggish-at-best growth as of late
EUR ⇑
The single currency is holding onto some gains it managed to claw back in the afternoon yesterday, trading roughly two thirds of a percent stronger against USD than at yesterday’s open. Flows for the pair are heavily driven by US economic releases and events this week, with the data calendar for the economic bloc quite quiet. As it stands now, the (albeit rather speculative) report of a potentially more gradual tariff schedule is helping keep EUR afloat, though the currency is still trading close to its weakest point since late in 2022 against USD. Divergent policy expectations between the European Central Bank and Federal Reserve, with the Fed set to keep interest rates higher for longer, is a hard dynamic for the pair to overcome.
