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USD Index Slumps 1.5% As US CPI Sparks Fed Easing Bets in 2024

FOREX
  • Softer-than-expected US CPI prompted a significant gap lower for the USD index in the aftermath of the data. As markets price in more, and faster, Fed rate cuts next year, the greenback has slowly been extending its decline throughout the session with the USD index down 1.5% as we approach the APAC crossover.
  • It is worth noting that both AUD and NZD are now up over 2% on the day with the surge for major equity benchmarks providing additional tailwinds to risk-sensitive currencies. The antipodean FX strength is only behind the Swedish Krona as the best performer in G10.
  • In similar vein, EUR and GBP are up just shy of 1.8%. For EURUSD, multiple resistance levels have been breached, and in most recent trade, 1.0882, the Sep 1 high has been pierced. Most notable topside level now comes in at 1.0945, the Aug 30 high and a key resistance.
  • For cable, price is zoning in on the 1.25 handle ahead of tomorrow’s UK CPI data. We noted that resistance at 1.2428, Nov 6 high and the bull trigger, was cleared, triggering an impressive move towards the Sep 14 high of 1.2506.
  • The lower core yields and favourable price action for stocks have underpinned a similarly impressive rally in merging market currencies, including 2.5% rallies for both the ZAR and PLN against the greenback, only trumped by the Chilean peso which has recovered 3.5% on Tuesday.
  • Activity data from China takes focus overnight with industrial production and retail sales to be the latest barometers for the health of the Chinese economy. Australian wage price index will also cross. Afterwards, all eyes will be on the UK CPI data, before US retail sales, PPI and Empire State Manufacturing round off Wednesday’s docket.
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