CPI Becomes Dollar's Direction Determinant
The US Dollar Index (DXY) held near 97.00 during Friday's Asian session, posting a third consecutive day of gains. However, movement remained limited as market participants remained cautious ahead of the release of US inflation data, namely the January Consumer Price Index (CPI), which is considered the next trigger for volatility.
Market consensus expects headline inflation to slow to 2.5% from 2.7%, while core inflation is projected to decline to 2.5% from 2.6%. If the CPI figures are lower than expected, it could open the door for the Federal Reserve to resume interest rate cuts, after holding policy at its first meeting of the year.
Currently, the market still projects around two Fed rate cuts throughout 2026, with the first likely to occur in the second half of the year following stronger-than-expected January employment data. However, issues remain, including potential adjustments to the central bank's balance sheet and policy dynamics ahead of Kevin Warsh's expected appointment as Fed Chair in May.
In terms of policy communication, Fed Governor Stephan Miran stated that monetary policy has effectively "tightened" on its own, leaving room for lower interest rates. Miran assessed that inflation—after adjusting for certain distortions—is nearing target, while the labor market still has room for slack. Consistently, the CME FedWatch indicator shows a nearly 91% probability that the Fed will maintain interest rates at its next meeting, up from 77% the previous week. (asd)
Source: Newsmaker.id
