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Forex Today: US Monthly CPI Unchanged, Triggers Hawkish Shift on Rate Cuts

US CPI Data Shows Annualized Rate Higher Than Thought; USD/JPY Breaks Out to New 34-Year High at ¥153.25; Bank of Canada Leaves Rates Unchanged But Neutral Rate Rises; ECB Expected to Leave Rates Unchanged.

  1. Yesterday’s release of US CPI data was higher than expected, with month-on-month inflation unchanged at an increase of 0.4%, higher than the anticipated 0.3%. This resulted in an increased annualized rate of 3.5%. This has triggered:
  1. More hawkish expectations about the Fed’s expected rate cuts over 2024, with rate cuts not expected now until September. This has been reinforced by the FOMC Meeting Minutes which were also released yesterday, which showed “Participants Generally Noted Recent Data Had Not ‘Increased Confidence’ That Inflation Was Moving Sustainably Down to 2%”.
  2. An increase in value by the US Dollar, with the Dollar Index (DXY) now trading above the formerly strong resistance level at 104.68.
  3. A minor selloff in US stock markets and several commodities, although precious metals have held up relatively well.
  1. In the Forex market, professional market bets against the Japanese Yen had reached a 17-year high, and the professional traders were correct in their analysis: yesterday’s US CPI data sent the USD/JPY currency pair rocketing as high as ¥153.25, which will be exciting for trend traders who will be looking to be involved on the long side here. Japan’s top currency diplomat Kanda reacted by stating he wouldn’t rule out any steps to respond to these disorderly currency moves. Since today’s Tokyo open, the strongest major currency has again been the New Zealand Dollar, and the weakest major currency has been the Japanese Yen.
  2. Although most commodities have traded lower since the US CPI data release, spot Gold has held up relatively well. Other precious metals made gains yesterday, with Silver again reaching a new 2.5-year high price.
  3. In its policy release yesterday, the Bank of Canada kept its interest rate at 5.00%, as was expected. However, the Bank raised the neutral rate to be between 2.25% and 3.25%, up from 2% to 3% prior to the meeting. None of this had much effect upon the Canadian Dollar.
  4. The minor commodity Cocoa continues to look bullish after making another higher daily close yesterday. The commodity superfood has almost tripled in value over the last year alone, with many analysts suggesting supply side shortages are at least partly to blame for the meteoric rise. There is more and more demand for Cocoa every year as it is coveted as a key ingredient for chocolate but also as a superfood in its own right. Trend traders will be interested here on the long side. As well as Cocoa futures, there are Cocoa ETNs available which may be more suitable for retail traders and investors.
  5. Markets are awaiting the policy meeting which will take place later today at the European Central Bank. The Bank is expected to leave its Main Refinancing Rate at 4.50%.
  6. There will be high-impact data releases later today concerning US PPI data and Unemployment Claims.

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    Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.


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