Currency Markets Pause Ahead Of U.S. CPI Data

(RTTNews) - Currency markets witnessed moderate movements in the week spanning February 6-10 ahead of the crucial CPI data release from the U.S. on February 14. Markets reassessed the outlook for inflation and interest rate trajectory amidst a dovish speech by the Fed Chair, further rate hike by Reserve Bank of Australia, and data showing a rise in inflation in Germany and an economic stagnation in U.K.

The Dollar's surge in the earlier week amidst the blockbuster jobs report and the escalation in tensions between the U.S. and China eased over the course of the week. The DXY or the Dollar Index which measures the strength of the Dollar against a basket of six currencies strengthened from 102.92 on Friday, February 3 to a high of 103.96 by Tuesday, ahead of the Fed Chair's address at the Economic Club of Washington D.C.

Despite fears over taking cognizance of the strong jobs data released in the earlier week to sound hawkish in his speech, Federal Reserve Chair Jerome Powell reiterated the disinflation process in the economy, and was less aggressive than feared. The bullish momentum in the Dollar eased and the DXY touched the week's low of 102.64 on Thursday before finally ending the week at 103.63. The Dollar Index's gain during the week was 0.70 percent.

The euro depreciated against the dollar during the past week. From the level of 1.0793 on February 3, the pair closed at 1.0675 on February 10. The week's high was 1.0799, touched on Monday whereas the low was 1.0666 touched on Friday. The pair shed more than 1 percent during the week, even as data from Germany showed annual inflation rising to 8.7 percent from 8.6 percent in the previous month.

The British pound edged 0.06 percent higher against the Dollar over the course of the week. The GBP/USD pair strengthened from 1.2051 on Friday, February 3 to 1.2058 by February 10. The sterling depreciated to as low as $1.1960 on Tuesday before strengthening to the week's high of $1.2195 on Thursday. Amidst data that showed the economy had stalled in the fourth quarter, the Bank of England had last week warned that the British economy would enter a shallow but lengthy recession.

The Japanese yen weakened against the Dollar in the beginning of the week over reports that Bank of Japan Deputy Governor Masayoshi Amamiya, a proponent of the ultra-loose monetary policy was in consideration to lead the central bank after incumbent governor Haruhiko Kuroda. The yen's depreciation lifted the USD/JPY pair to as much as 132.91 at the commencement of the week.

But by the close of the week, the yen gained after economist Kazuo Ueda was named by the government for the top job. His appointment is expected to pave the way for the reversal of the ultra-dovish stance that has characterized Japanese monetary policy for years. The anticipated hawkist tilt in central bank policy benefitted the yen, dragging the USD/JPY pair to a low of 129.80 on Friday. Between the level of 131.17 on February 3 and 131.41 on February 10, the pair gained around 0.2 percent.

The Australian Dollar failed to make major strides against the Dollar over the course of the past week despite the Reserve Bank of Australia raising rates by 25 basis points on Tuesday as well as flagging further rate hikes. The AUD/USD pair edged 0.04 percent lower to 0.6916 versus the close of 0.6919 on February 3. The pair ranged between a high of 0.7013 and a low of 0.6855 over the course of the week.

Markets now await the CPI readings from the U.S. on Tuesday to speculate on whether the Fed would have the leeway to slow down on its rate hikes. Factoring in current expectations, the DXY has moved higher to 103.65. The EUR/USD has increased to 1.0699 whereas GBP/USD has increased to 1.2100. The movements in USD/JPY which is currently at 132.68 and in AUD/USD which is currently at 0.6942 would also be in tandem with market expectations on CPI.

Economists forecast the CPI for the month of January to fall to 6.2 percent, from 6.5 percent in the previous month. Core component is also seen falling to 5.5 percent from 5.7 percent earlier.