US Dollar Wavers as Disinflation Narrative Persists Amid Mixed Economic Signals
The US Dollar (USD) finds itself in a precarious position, relinquishing its recent gains following a surge triggered by a red-hot inflation report earlier in the week. However, Fed members are cautioning against overinterpretation of this singular CPI data point, emphasizing the broader disinflationary trajectory that persists. Austan Goolsbee, a member of the US Federal Reserve, echoed sentiments urging markets not to tether their expectations solely to the CPI figure, hinting at the underlying factors shaping monetary policy.
Amidst a flurry of economic data releases, markets’ attention is fixated on Retail Sales figures, viewed as a litmus test for the resilience of consumer spending. Complementing this heavyweight data, Industrial Production and Import/Export Prices offer supplementary insights into the prevailing disinflationary undercurrents, reinforcing the notion that the recent CPI spike may indeed be an aberration. Additionally, market participants eagerly await remarks from Fed member Christopher Waller, slated to provide further clarity on the central bank's stance.
The US Dollar Index now finds itself in a holding pattern, faltering in its attempt to breach the elusive 105 threshold. With expectations of imminent rate adjustments looming, the DXY is poised to retreat, potentially revisiting support levels at 104 or lower.
The technical setup of DXY played out as expected: the price recoiled from the medium-term crucial resistance line, validating its importance. A potential selling target could be the support line that guided the recovery of the USD since the start of the year, corresponding to the 104 level on this instrument:
The Pound Sterling (GBP) grapples with its own set of challenges, tumbling amid news of the United Kingdom slipping into a technical recession. Preliminary Gross Domestic Product (GDP) data from the UK Office for National Statistics underscored a contraction of 0.3% in the fourth quarter, marking the second consecutive quarterly decline—a telltale sign of recession. The bleak economic backdrop intensifies speculation of preemptive rate cuts by the Bank of England, aimed at resuscitating growth momentum.
As economic indicators flash warning signals, the Pound Sterling braces for further downside pressure, exacerbated by foreign outflows amid mounting expectations of dovish policy maneuvers by the BoE. Despite steady consumer price inflation in January, diverging from investor projections of acceleration, BoE Governor Andrew Bailey remains sanguine about price pressures converging toward the target threshold by spring. Nevertheless, the specter of stubborn wage growth and service inflation poses formidable hurdles to achieving the coveted 2% inflation benchmark.
The GBP/USD pair retraces from intraday highs, eyeing a downward trajectory towards the 200-day Exponential Moving Average (EMA), positioned around 1.2520. From there, however, the pair has good chances to rebound on the back of the broad weakness of the USD described in the previous paragraph:
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