The US Dollar clawed back some of the overnight losses in the Asian session. The prospect of a less hawkish Federal Reserve has been spurred on by yesterday’s data and sent the DXY (USD) index to a six-month low.
Headline US CPI was 7.1% year-on-year to the end of November rather than the 7.3% forecast. It remains well above the Federal Reserve’s inflation target of around 2%.
An easing of price pressures has led to speculation of the Fed stepping back from its tough tightening stance going into 2023. Treasury yields tumbled on the news with the benchmark 2-year note trading below 4.15% after trading at 4.44% earlier in the session.
A 50 basis point (bp) lift is widely anticipated by the Fed later today. The focus of the Federal Open Market Committee (FOMC) meeting will be on the language from Fed Chair Jerome Powell in the post-announcement press conference.
Aside from the Fed, the European Central Bank (ECB) and the Bank of England (BoE) will also be deciding on rates on Thursday. UK CPI today could impact the BoE’s deliberations.