By Konstantinos Chrysikos Head of Customer Relationship Management at Kudotrade
The dollar ticked slightly higher on Friday ahead of January’s consumer price report, a release that could recalibrate expectations for Federal Reserve monetary policy and inject volatility into both forex and bond markets. Both headline and core inflation are projected to slow down slightly on an annual basis.
A softer reading would reinforce the disinflation trend and validate current pricing for two rate cuts later this year. The latter could see the dollar and yields move to the downside. However, any upside surprise could quickly challenge that narrative and bolster the greenback and yields, particularly after this week’s robust payrolls report reduced fears of a sharper labor market slowdown.
Additionally, several policymakers have recently emphasized caution, signaling that inflation risks have not fully dissipated despite some cooling in price pressures. Still, policy messaging remains mixed. Governor Stephen Miran reiterated the case for further easing. This divergence could add to the uncertainty ahead of today’s inflation data.