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  • Forex today was governed by risk on markets, US CPI and a bid in the dollar and US yields once again.

The optimism of the trade talks underway this week between low level officials, soon to be joined by  trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin who will arrive in Beijing today to meet with Chinese Vice Premier Liu He, who is the top economic adviser to President Xi Jinping, is supporting the risk on mood. Moreover, Trump, declaring that trade talks are going very well, was also reported to be willing to delay the March 1 deadline that he previously proposed for raising tariffs if negotiations with Beijing progress positively. Additionally, US stocks added to this week’s gains as investors cheered Trump’s comments over a government shutdown, saying that it would be a “terrible thing”, leading to speculation that one would be averted.

On the data front, US headline consumer prices were unchanged in January, below expectations for a 0.1% gain.

“Encouragingly, core inflation rose 0.2% m/m, a little above expectations, to nudge up from 2.1% to 2.2% y/y. Nonetheless, US inflation data remains contained and consistent with recent forward guidance that tightening is on hold for the time being. Echoing this sentiment, US Fed’s Bostic said “we can take our time” to get to neutral,” analysts at ANZ Bank explained.  

Arguing that today’s CPI data was soft, we had Philly Fed president Harker cross the wires who sees a one and done rate hike this year and another in 2020.  

As for US yields, the US 10yr treasury yield rose from 2.68% to 2.71%, while 2yr yields rose from 2.51% to 2.54%.  

Currency action:

Analysts at Westpac noted the key movers in the G10 space as follows:

  • “EUR/USD completely unwound the previous day’s rally, rolling over from 1.1340 to 1.1275.  
  • GBP/USD was choppy at times but overall a little lower, around 1.2860. USD/JPY rose from 110.60 to nearly 111 in late NY trade, printing highs since 28 December.
  • The AUD/USD rally to 0.7135 in Sydney inspired by the soaring kiwi fizzled out in London/NY, slipping back to 0.7100.  
  • NZD/USD had risen from 0.6735 to as high as 0.6852 in reaction to the RBNZ Monetary Policy Statement, then eased back to 0.6800 in the broadly strong USD mood in NY. AUD/NZD trimmed its losses on the day to about 1 cent, steadying around 1.0435.”

Key events from US session:

  • Wall Street extends upside on political optimism, DJIA heading to 76.4% Fibo at 25668

Key events ahead in Asia:

Markets will look to today’s China Jan trade data is due today, with no fixed time.