Asian session review: the US dollar is showing negative dynamics

During today's Asian trading, the US dollar declined slightly against major currencies amid partial profit-taking after yesterday's rally caused by strong inflation data and a revision of the prospects for easing the Fed's monetary policy.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.12% to 104.83. Yesterday, the index rose by 0.76%, reaching its highest level since November 14, as data showed that consumer price growth slowed to 3.1% per annum in January from 3.4% per annum in December, but exceeded economists' forecasts (2.9% per annum).  Against this background, traders pared back expectations for the pace and scale of rate cuts by the Fed this year. According to the CME FedWatch Tool, markets see a 10.5% probability of a 25 basis point rate cut at the Fed meeting in March and a 41.4% probability of a rate cut in May, with 90 basis points of cuts priced in for this year (compared to 110 basis points at the beginning of the week). Meanwhile, the prospect that U.S. rates are likely to stay elevated for longer than initially expected pushed the 10-year Treasury yield to an over two-month high.

The yen rose by 0.25% against the US dollar, to 150.40, helped by statements by Chief Cabinet Secretary Yoshimasa Hayashi. He said that the authorities are closely monitoring the movements of the foreign exchange market, and added that it is important that currencies move steadily, reflecting their fundamentals. The 150 level has in the past been viewed by traders as one that could pave the way for official intervention in the market.

The pound fell 0.2% against the US dollar as weaker-than-expected inflation data bolstered investor confidence that the Bank of England could soon begin to cut interest rates. The Office for National Statistics (ONS) said that in January consumer prices rose by 4.0% per year after a similar increase in December. Economists had expected inflation to accelerate to 4.2%. Meanwhile, core CPI - which excludes energy, food, alcohol and tobacco - rose by 5.1% per annum (the lowest rate since January 2022) after a similar increase in December. Consensus estimates suggested an increase by 5.2% per annum. On a monthly basis, core consumer prices fell 0.9%, compared with the 0.6% increase in December and the market estimate of a 0.8% decrease. The data also showed that on a monthly basis, the consumer price index fell by 0.6%, offsetting the December increase (+0.4%). Economists expected a 0.3% drop.