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Forex Market Consolidates Ahead of Inflation Data

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Updated on
  • Dollar Index Flat as Yield Strength Continues
  • Focus on US CPI Numbers to Come
  • Wall Street Maintains Positive Momentum

The forex market continued to trade sideways early on Thursday with the US Dollar Index holding close to the 95.00 level as attention turns to important CPI figures for January that will be released later in the US session. At the same time, while demand has leveled out, the US Treasury yield remains strong around 1.9% with the prospect of several rate hikes to come throughout the year. Meanwhile, on Wall Street, stocks have kept the positive momentum with which they began the week. Markets notched another day of gains yesterday as major earnings continued. 

Dollar Index Stable and Strong

The US Dollar Index, a measure of Dollar strength against a number of other major currencies, continued to trade sideways on Wednesday as those trading forex began to think ahead to the release of inflation data in today's session. Though in a consolidation phase, this level remains a strong one for the Dollar when compared with where it has come from through the pandemic period. 

This modest Dollar weakness has provided the opportunity for both the Euro and Pound to gain, but those forex trading both have shown little enthusiasm early in the European session. The Pound has also traded slightly lower to start the day with Bank of England Governor Andrew Bailey set to speak later in the day. This could work to provide some impetus to Sterling before US trading begins. 

CPI Figures Key Driver for Market 

The main focus of the trading day stays fixed on Consumer Price Index data for January which will be released later today. This is a key measure used to gauge inflation in the economy which has only gathered more attention as concerns around inflationary pressures persist. The number will no doubt continue to fuel talk around just how many rate hikes the Federal Reserve will look to enact this year. 

The headline CPI number is expected to set a 39-year high as analysts have forecast a 7.3% year-on-year rate which would be an increase on the previous month's record of 7%. Forex brokers will know that with this number already expected, any miss on either side could impact the Fed narrative around rate hikes, and in turn market prices.

Stocks Attempt to Continue Rebound

Futures on Wall Street are mixed after two days of back-to-back gains in major indices. The Nasdaq jumped more than 2% in regular trading yesterday with gains led by rebounds in some previously hit stay-at-home stocks. The Dow Jones also posted gains while the S&P 500 rose 1.5%.

Major earnings reports continue to come in today with Twitter and Coca Cola two of the big names set to report before the opening bell. The inflationary outlook will also have an impact on sentiment here with any higher than expected numbers likely to reflect on high multiple names.

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.