EUR/USD, GBP/USD, AUD/USD, USD/JPY – U.S. Dollar Retreats As Inflation Reports Meet Expectations

Vladimir Zernov
Published: Jan 12, 2023, 15:54 GMT+00:00

Markets expect that the Fed will raise the federal funds rate by 25 bps at the next meeting, which is bearish for the U.S. dollar.

U.S. Dollar

In this article:

Key Insights

  • EUR/USD tested new highs at 1.0838.
  • GBP/USD failed to settle above the important 1.2200 level. 
  • USD/JPY pulled back towards the key 130 level. 

U.S. Dollar Tests New Lows After CPI Data

DXY 120123 Daily Chart

The key event of the day is the release of U.S. inflation data. Inflation Rate declined from 7.1% in November to 6.5% in December, while Core Inflation Rate decreased from 6% to 5.7%. Both reports met analyst expectations.

U.S. Dollar Index tested new lows at 102.29 after the release of the inflation data but lost momentum and rebounded towards 102.70. The market expects that the Fed will raise the federal funds rate by 25 bps at the next meeting. It remains to be seen whether these expectations have been fully priced in by currency traders.

EUR/USD Rallied To Multi-Month Highs

EUR/USD 120123 Daily Chart

EUR/USD is currently trying to settle above the 1.0800 level. The U.S. inflation data provided additional support to the euro, which has been moving higher as the recent economic reports from the Eurozone exceeded analyst expectations.

In case EUR/USD manages to stay above the 1.0800 level, it will move towards the resistance near the recent highs at 1.0835.

GBP/USD Is Mostly Flat In Volatile Session

GBP/USD 120123 Daily Chart

GBP/USD has recently made another attempt to settle above the 1.2200 level but lost momentum and moved closer to 1.2150.

The British pound lacks specific upside catalysts. Tomorrow, traders will focus on UK economic data, which may provide additional support to the pound .

AUD/USD Gains Ground As Commodity Markets Move Higher

AUD/USD 120123 Daily Chart

AUD/USD tested new highs near 0.6985 as commodity markets gained ground in today’s trading session. The general weakness of the U.S. dollar provided additional support to AUD/USD.

Other commodity-related currencies have also managed to move higher today. NZD/USD settled near the 0.6375 level, while USD/CAD made an attempt to settle below the 1.3400 level.

USD/JPY Is Down By 2% As Traders Bet On A Less Hawkish Fed

USD/JPY 120123 Daily Chart

USD/JPY  tested the 130 level after the release of U.S. inflation data. The general trend in USD/JPY remains bearish, and USD/JPY has a decent chance to settle below the 130 level if the U.S. Dollar Index remains under pressure.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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