Dollar mixed after US CPI, ahead of the Fed

Eyes will be on the Federal Reserve and Chair Powell on Wednesday. During the Asian session, New Zealand will report Current Account figures, and the Tankan survey will be released in Japan. More inflation data is due in the US with the Producer Price Index (PPI).

Here is what you need to know on Wednesday, December 13:

The Federal Reserve will end its December meeting on Wednesday. No change in rates is expected, and the guidance is expected to maintain the same bias. Market participants will closely examine the new macroeconomic forecasts and Chair Jerome Powell’s comments, which could influence rate expectations for the next year.

Analysts at TD Securities on FOMC: 

The Fed is widely expected to again keep rates steady this week. Powell will have to walk a fine line by recognizing the ground gained towards the normalization of the economy while pushing back on the idea of early rate cuts. We expect the chairman to lean against the Committee’s likely dovish guidance at 2pm, with guarded hawkishness in the post-meeting presser.

More inflation data is due in the US with the Producer Price Index (PPI), which is expected to show a month-over-month increase of 0.1% in November and an annual rate of 1%, below the 1.3% recorded in October.

On Tuesday, the US Consumer Price Index (CPI) report aligned with market consensus. The CPI rose 0.1% in November, and the annual rate stood at 3.1%, below the 3.2% recorded in October. The core rate increased by 0.3%, and the annual rate remained at 4%.

Analysts at Commerzbank on US CPI inflation: 

The underlying inflationary pressure is thus decreasing, but only gradually. In view of these trends, it is unlikely that the Federal Reserve will raise interest rates again. However, a rate cut is also not realistic until mid-2024.

The US Dollar dropped and then recovered following inflation figures. The US Dollar Index (DXY) experienced a modest drop before the last Fed decision of the year. The DXY faces resistance around the 104.30 zone and continues to trade sideways. Limited price action in the bond market contributes to the overall mixed performance of the US Dollar. The 10-year Treasury yields fell slightly from 4.23% to 4.20%.

EUR/USD rose on Tuesday but failed to hold above 1.0800. The short-term outlook is biased to the upside, although without solid conviction. The European Central Bank (ECB) will announce its decision on monetary policy on Thursday, with no changes in rates expected.

USD/JPY lost ground but trimmed losses after US CPI data, consolidating above 145.50. The Tankan survey is due on Wednesday, with mixed numbers expected.

GBP/USD continues to trade around 1.2550 and the 20-day Simple Moving Average (SMA). The UK will report monthly gross domestic product growth for the three months ending in October and industrial production data. On Thursday, the Bank of England (BoE) will announce its decision on monetary policy.

NZD/USD still holds above key moving averages and remains in the 0.6100 zone. The Food Price Index and Current Account figures for the third quarter are due on Wednesday, and GDP data will be released on Thursday.

Antipodean currencies are expected to benefit from higher equity prices on Wall Street. AUD/USD dropped modestly, reaching levels below 0.6550 after briefly surpassing 0.6600. It continues to move without a clear direction.

Gold spiked to $1,996 after US inflation data but quickly attracted fresh selling pressure, pulling back to the $1,980 zone. The yellow metal is not shining. A less hawkish Fed could trigger a recovery rally.

Crude Oil prices resumed the downtrend after a three-day recovery. WTI lost more than 3.50% and posted the lowest close since June, dropping below $69.00.