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US Dollar Recoups Losses Ahead Of Inflation Data

FOREX
  • The greenback maintained an upward trajectory on Thursday, slowly eating into yesterday’s drawdown. The DXY remains very close to last week’s close as we approach US CPI data on Friday that will be the focus for global markets.
  • Largely tracking the index, EURUSD (-0.44%) edged back below 1.1300 from overnight highs around the 1.1350 mark. Similar moves lower were seen in AUD, NZD and CAD.
  • One of the key moves on Thursday was in CNH, following the PBoC raising the forex reserve requirement ratio by 2 percentage points. Thereby incentivising commercial banks to hold more in FX reserves and implicitly boosting demand for USD while restricting supply. This is the second such policy move from the Chinese central bank this year, having raised the FX RRR at the end of May.
  • USD/CNH initially rallied around 0.2% to touch session highs at 6.3624 but supportive price action was maintained with the pair residing 0.5% higher for the session.
  • In emerging markets, the strength in the dollar combined with a string of poor domestic data releases in South African prompted a sharp pullback for the Rand where USDZAR rallied 1.75% to 16.00.
  • Tomorrow’s focus will be solely on US CPI, due at 1330GMT/0830ET. Consensus is for another strong monthly print with headline +0.7% M/M and core +0.5% M/M. Barring a very large miss, November's CPI inflation report is unlikely to change analysts' views that the Fed will accelerate the taper at Wednesday's meeting to give it rate hike optionality early next year.
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