Asian FX Close : Dollar Bulls look to upcoming PPI and Jobless Claims for a boost
Snapshot
- USD: Bulls look to upcoming PPI and Initial Jobless Claims numbers for renewed boost
- EUR/USD: Cautious optimism on potential peace negotiations between Russia-Ukraine boosts the common currency
- USD/JPY: Upside risk towards the 50 DMA~155.34
- AUD/USD & NZD/USD: Probing upper end of a thin trading range in Asian session
- Crude Oil: Sharp sell off as successful peace negotiations will end risk to Russian oil supply
US Dollar
The initial bout of strength to the dollar after the hotter than expected US CPI report have not been sustained and the softer tone have pervaded in the Asian session. DXY have now breach back below it’s 50 DMA.
It could be that dollar bulls are finding difficulty shifting to higher gears as Trump’s tariff threats and trade policy uncertainty which initially boosted the dollar have now raise concerns. Potential reciprocal tariffs could start impacting on US growth and damage the “resilient economy” narrative which made it a favoured destination for capital inflows.
Irregardless, OIS markets is now pricing in just one cut for 2025. 5 years breakeven inflation expectations rates hit the highest since March 2023. Treasury yields jump across the board with 10-year yields spiking to a high of 4.657%, with yields maintaining their gains way better than the dollar. The "sticky inflation" theme remains but market is perhaps starting to re-look the reasons that have thus far contributed to dollar strength
Next up - US Initial Jobless Claims and PPI data. January PPI MoM is expected to tick up to 0.3% from 0.2% prior. It’ll be interesting to note if there are early signs of rising production costs due to the tariff policies.
For the week ending Feb 8, the forecast for initial jobless claims is 216K compared to prior 219K. These levels continue to indicate a healthy labour market with relatively low layoffs
Spill over inflationary pressures from a higher-than-expected PPI number along with robust labour numbers could continue to raise fears that inflation is in danger of re-accelerating and further question if the Fed will be able to resume rate cuts. Perhaps another chance for dollar bulls to reassert?
Euro
EUR/USD continues it's firm stance in the Asian session over positive overtones from a possible peace negotiation between Russia-Ukraine. Upcoming Euro data that could have an effect on the Eur's trajectory includes 1) German CPI data - CPI YoY is expected to edge down to 2.3% from 2.6% prior while CPI MoM is expected to post a negative -0.2% compared to 0.5% prior 2) Euro Area Industrial Production MoM - expected to show a -0.6% decline compared to 0.2% growth prior. All in all the data looks likely to continue to point towards economic sluggishness and the need for further monetary easing by the ECB which could put downward pressure on EUR/USD
A successful peace treaty between Russia-Ukraine though is likely to give a further boost to Eur bulls as it removes one of the key stumbling blocks to reigniting Eurozone growth, which is freeing up Russian energy supplies to pare down high energy costs
Japanese Yen
JPY suffered the brunt of the above consensus US CPI report, It has however managed to pare back some losses against the dollar in the Asian session. USDJPY though still risk extending higher towards the 50 DMA~155.34. Capping upside at 155.89 (3 Feb minor lower high) could keep yen bulls in play
Yen bulls though, still needs to pass another hurdle in the upcoming US PPI and Initial Jobless Claims data in a US data heavy week. A higher-than-expected PPI number along with robust labour numbers could continue to put a bid under US Yields and keep Yen on the backfoot
Yen bulls also need to gauge if BOJ Governor maintains a firm view towards further tightening despite President Trump’s recent tariffs on metals and amid signs that Trump will continue to ratchet up the tariff threats. Please see - USD/JPY : JPY bears the brunt of the firm US CPI numbers and FOREX: USD/JPY Metrics
Australian & New Zealand Dollars
AUD managed to stem earlier losses after the consensus beating US CPI report. The currency also got a risk on bid as hopes were raised for peace talk negotiations between Russia-Ukraine. Recent boost in commodity prices also lend a hand to Aussie bulls. Currently trading in the upper end of a narrow .6274-.6291 range in the Asian session. Overcoming January's high at .6331 still needed to firm conviction that a base is forming over .6088
Australia's February Consumer inflation expectations rose to 4.6% up from 4% in January, marking the highest level since April 2024. This increase came despite actual inflation moderating to 2.4% in Q4 2024 which is within RBA's 2-3% target range. Elevated inflation expectations while actual inflation stays subdued could signal weaker consumer confidence and reduce spending power. This could end up weighing on the AUD - Please see AUD/USD: Hot US CPI Puts The Pair At A Disadvantage
NZD too managed to claw back much of the earlier losses after the US CPI report. The technical picture though is not as bright as AUD as it has continued to languish below it's 50 DMA. Currently trading at the upper end of a narrow .5636-.5651 range in the Asian session - Please see NZD/USD: Against The Tide Of US Hot Inflation, and Fed Policy
Crude Oil and Commodities Movements
Brent Crude & WTI sold off sharply after news of peace talk negotiations between Russia-Ukraine filtered through and raise hopes that risks to Russian oil supply may now ease - Please see OIL: Under Pressure As Possible End To Russia-Ukraine War Weighs; IEA Monthly Report Due Today
Gold maintains it's allure in a chaotic world where tariff battles permeate and in an effort to protect one's markets, the easiest path may be to depreciate one's own currency. Gold opens above the 2900 levels in Asian session and have continued to firm. At this stage it appears to be overcoming higher US yields, overcoming stronger dollar and marching on it's own beat.
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