Dollar vulnerable to the downside on easing inflation pressures – MUFG

The major foreign exchange rates remain stable as they trade in a holding pattern ahead of the release later today of the latest US CPI report. Economists at MUFG Bank believe the risks are more skewed to the downside for the dollar heading into the release of January Consumer Price Index (CPI) data.

Annual CPI expected to climb to 7.2% in January 

“The US CPI report is expected to reveal that both headline and core inflation picked up further to 7.2% YoY and 5.9% YoY respectively in January. Market participants may draw some comfort though if the monthly pace of inflation eases for the third consecutive month after slowing to 0.6% MoM in December down from 0.7% MoM in November and a peak of 0.9% MoM in October.”

“Recent price action highlights that the dollar is vulnerable to the downside today and could extend its correction lower if the January CPI report reveals any further encouraging signs that inflation pressures are beginning to ease albeit from elevated levels.”

“Another big upside surprise would likely be required to further encourage market participants to price in an even higher risk of the Fed delivering a larger 0.50 point hike at the next FOMC meeting on 16th March.”

See – US CPI Preview: Forecasts from 10 major banks, higher but showing moderation