The USD Dollar Remains Weak In The Aftermath Of The US CPI And Ahead Of The Fed. USD At A New Low?

The US Dollar fell after a lackluster CPI report gave the market confidence that the Federal Reserve's hawkishness would halt when they met later today. Where is the DXY (USD) index heading？

• Talking Points: US Dollar, DXY Index, USD, US CPI, Fed, FOMC, ECB, BoE

• After a sharp drop in the US CPI, the US Dollar sought refuge today.

• Markets are excited by the prospect of pricing pressures easing.

• Will the USD sink or swim if the Fed continues to combat inflation？

In the Asian session, the US Dollar recovered some of its overnight losses. Yesterday's data fueled expectations of a less hawkish Federal Reserve, sending the DXY (USD) index to a six-month low.

Headline To the end of November, the US CPI was 7.1% year on year, lower than the 7.3% predicted. It is still significantly over the Federal Reserve's 2% inflation objective.

The Fed's strong tightening policy may be eased when price pressures ease in 2023, according to conjecture. Treasury rates fell on the news, with the benchmark 2-year note trading at less than 4.15%, down from 4.44% earlier in the day.

The Fed is largely expected to raise interest rates by 50 basis points (bp) later today. The Federal Open Market Committee (FOMC) meeting will be focused on Fed Chair Jerome Powell's post-announcement news conference.

In addition to the Fed, the European Central Bank (ECB) and the Bank of England (BoE) will make rate decisions on Thursday. The UK CPI today may have an influence on the BoE's decisions.

After a strong lead from Wall Street in the wake of a relatively benign CPI reading, APAC shares are mainly flat or slightly stronger.

Due to an increase in Covid-19 infections in the city, China postponed an economic conference meeting in Beijing. It outlines some of the challenges that China's re-opening will face.

So far today, crude oil is marginally down, with the WTI futures contract around US$ 75 barrel and the Brent contract just over US$ 80 bbl. Gold has maintained its overnight gains, trading at $1,810 per ounce.

The Tankan survey in Japan was somewhat flat, but Japanese core machine orders surpassed forecasts, increasing 5.4% month on month in October. Today, the Japanese Yen is one of the few currencies that is gaining momentum versus the US Dollar.

Several inflation indicators from throughout Europe will be revealed with the UK CPI and the Fed rate decision. On Thursday, China will be bombarded with data.

TECHNICAL ANALYSIS OF THE DXY (USD) INDEX

The DXY index fell overnight but was unable to breach the June lows or the 260-day simple moving average (SMA) in the 103.42-103.67 range. That place may continue to give assistance.

Resistance might be found on the upside at the prior high of 105.82, 107.20, and 107.99.

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