Calm Before U.S. CPI

The greenback turned bid in early Asia trade but its strength gradually fizzled away as the session progressed. The BBDXY index crept above yesterday's high, topped out at 1,273 and pared gains as the session progressed.

• The greenback staged its round tripped as U.S. Tsy yields wavered in Tokyo trade, with regional players awaiting the latest batch of U.S. CPI data. The report will be closely watched for any hints on the future direction of Fed tightening campaign.
• The USD gave back its initial gains despite a parallel upswing in USD/CNH as Chinese CPI (+2.7% Y/Y versus +2.9% median) and PPI (+4.2% Y/Y versus +4.9% median) missed expectations. Spot USD/CNH added ~50 pips before stabilising near its current levels.
• USD/JPY eased off highs into the Tokyo fix and ground further into negative territory as the yen took the lead in G10 FX space (even if only by very narrow margins). Risk reversals continued to creep higher, with 1-year tenor consolidating above par.
• The Aussie dollar remained on the back foot amid cautious mood music. Another round of combative rhetoric from China, which refused to rule out using force in resolving the Taiwan situation, did little to boost sentiment.
• Volatility across major currency pairs was subdued, with many participants on stand by ahead of the release of said CPI report out of the U.S.
• Today's economic docket remains dominated by CPI figures. Apart from U.S. data, we will get the latest prints out of the Germany (f), Italy (f) and Norway. Speeches are due from Fed's Evans & Kashkari as well as BoE's Pill.