• Continued economic uncertainty is prompting investors to revisit growth forecasts, encouraging cautious positioning on major currency pairs.
• Softer-than-expected inflation data is raising questions about the Federal Reserve’s next move, forcing markets to reassess interest rate expectations.
• Benchmark Treasury yields have fallen from recent highs, highlighting market volatility following the latest inflation data.

The US dollar (DXY) delivered a edged loss this week, recovering from further weakness on Wednesday. December’s US CPI release was slightly softer than expected, fueling speculation about the Fed’s future path. The U.S. Dollar Index, which measures the value of the U.S. dollar against a basket of currencies, is falling below 109.00 and could accelerate its decline from there.

Daily Market Movement Summary: US Dollar Remains Weak After CPI Data

• Headline CPI for December increased by 2.9% y/y, beating some market rumors of a better result.
• Core CPI rose 3.2% over the same period, moderating from November’s pace when monthly core inflation was 0.2%.
• CME’s FedWatch tool shows investors have priced in a hold this month, in line with a data-driven stance.
• Yields are falling: 10-year bonds have fallen to about 4.65% from Monday’s 14-month high, reflecting reduced inflation expectations and a lower risk premium.
• Regional surveys show mixed economic activity, with some districts seeing frail expansion while others are seeing a subtle slowdown.
• Tariff discussions remain murky as some districts fear up-to-date policy changes could introduce risks of rising inflation, complicating the Fed’s work.

DXY Technical Outlook: Mild deterioration near multi-year highs

The US dollar index fell below the 109.00 mark as investors locked in gains on lower inflation readings. Despite the pullback, the broader uptrend remains intact near multi-year highs, with the 20-day uncomplicated moving average deterring sellers.