US Dollar Slides Ahead of CPI Report: Market Watch


The market has moved quickly past strong economic data from the US and is focused on CPI softening.

The bond market led the way with US 2-year yields down 9.8 basis points to 4.91%. It’s a quick turnaround for the start of the curve after hitting the high since 2007 yesterday.

There was something of a big finger at 4.75% as soon as the nonfarm payrolls were released, but after a rebound to 5% following the report, yields fell steadily.

The pressure on yields is trickling down to the US dollar, which was sold particularly strong against the yen today and the pound. Both are now near session extremes and this has pushed the pound towards the June highs.

The market is pricing a terminal rate of 6.38% in the UK, which is the highest among the G7 countries and is a figure that would lead to financial stability issues or a hard landing later on. But inflation is particularly high in the UK and that is what the market is focused on.

For the dollar more broadly, I feel like everyone is gearing up for the CPI. The consensus is 3.1%y/y, but there’s a chance it lands with a handful of 2s and that would start raising the victory flag over inflation.

There are also questions about the yen. A senior BOJ official today pushed back on the idea of giving up yield curve control, but at some point the BOJ needs to at least return to neutral, especially if the global economy continues to look strong .

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