US dollar flirts with 105 level post-CPI data

The US Dollar has been able to sharply leap upwards on Tuesday, reaching its highest level since mid-November. The Dollar Index, which measures the performance of the US currency against a basket of major rivals, is flirting with 105, specifically standing at 104.927 at the time of writing.

Hence, the dollar reached three-month highs after statistics revealed that U.S. inflation increased more than anticipated in January, supporting forecasts that the Federal Reserve would maintain interest rates in March. In response to the data, the US dollar also crossed 150 yen for the first time since November.

The Consumer Price Index (CPI) figures for the first month in 2024; January boosted the dollar, delaying the start of the Federal Reserve’s (Fed) easing cycle.

Fed Chair Jerome Powell indicated, earlier this month, that an interest rate cut in March was unlikely due to the bank still needing additional evidence on falling inflation. Higher inflation than expected on Tuesday has benefited the dollar as markets begin to eye June as the start of easing.

Reports by the US Bureau of Labour Statistics showed a 0.4% MoM increase in the Core inflation rate for January, surpassing the consensus and previous figures of 0.3%. On a YoY basis, Core inflation remained steady at 3.9%, maintaining the previous numbers but outdoing the forecasted 3.7%.

A rise in the US Treasury bond yields was observed following the data, with current rates placing the 2-year yield at 4.60%, the 5-year yield at 4.26%, and the 10-year yield at 4.27%, which benefits the US Dollar.

Market expectations for rate cuts based on the CME FedWatch Tool for the next May meeting dropped to 40%, while those odds rose to 50% for the June meeting.

The technical indicators on the daily chart reflect a prevalent buying momentum in the market, with bulls gaining ground. A sustainable move in the upward direction would likely be the order of the day in the foreseeable future in case bulls receive additional fundamental catalysts.