The biggest topic of the week so far has been the US Consumer Price Index (CPI). The market reacted sharply to the slight deceleration in year-on-year growth that fell just below market expectations. This led to a significant drop in US Treasury yields and a substantial decline in the dollar, strengthening the belief in a pause in US interest rate hikes.
However, the dollar’s downward movement has eased recently, partly due to the solid results of US retail sales reported yesterday. Today, there is a gradual move towards dollar strength, but overall, the momentum for a stronger dollar remains limited compared to the dollar-selling seen after the US CPI release.
The USD/JPY exchange rate has once again moved above the 151 yen level, but it appears that the yen-selling factor is more pronounced than dollar buying, given the overall strength in yen crosses.
Today, a series of US economic indicators will be released, including the US Initial Jobless Claims (11/05 – 11/11), US Import Price Index (October), US Export Price Index (October), Philadelphia Federal Reserve Manufacturing Index (November), US Industrial Production Index (October), and US NAHB Housing Market Index (November). Most of these indicators are expected to show some weakness compared to the previous readings, and if they come in stronger than expected, it could be seen as a surprise. However, none of these indicators are as highly anticipated as the US Consumer Price Index, and therefore, the dollar’s upside potential is likely to remain limited.
It is expected that there will be a tendency for the US dollar to weaken overall, particularly after the release of the Philadelphia Federal Reserve Manufacturing Index.
