US Dollar struggles to rebound following CPI-inspired selloff

After having suffered heavy losses against its major rivals on Thursday, the US Dollar is having a difficult time finding demand early Friday with the US Dollar Index trading flat slightly above 102.00. As investors assess how the December inflation data from the US will shape the Federal Reserve’s rate outlook, the benchmark 10-year US Treasury bond yield stays below 3.5% and US stock index futures trade marginally lower on the day. The European economic docket will feature Industrial Production and Trade Balance data for November. In the second half of the day, the University of Michigan’s Consumer Sentiment Survey for January and the Fed’s Index of Common Inflation Expectations for the third quarter will be looked upon for fresh impetus.

The US Bureau of Labor Statistics announced on Thursday that the annual Consumer Price Index declined to 6.5% in December from 7.1% in November. The Core CPI, which excludes volatile food and energy prices, edged lower to 5.7% from 6% in the same period. Following these data releases, the probability of a 25 basis points Fed rate hike jumped above 90%, according to the CME Group FedWatch Tool, from 75% early Thursday. Additionally, several Fed policymakers voiced their support for a 25 bps rate hike at the next meeting.

During the Asian trading hours on Friday, the data from China revealed that the trade surplus widened to $78 billion from $69.8 billion in November. With this reading surpassing the market expectation for a trade surplus of $76.2 billion, the Shanghai Composite Index gained traction and was last seen gaining more than 1% on the day.

Following Thursday’s impressive rally, EUR/USD touched its highest level since April at 1.0868 early Friday before retreating below 1.0850.

GBP/USD gained more than 50 pips on Thursday but seems to have gone into a consolidation phase at around 1.2200 early Friday. The UK’s Office for National Statistics reported that the Gross Domestic Product (GDP) expanded by 0.1% in November following October’s 0.5% growth. Although this reading came in better than the market expectation for a contraction of 0.2%, it failed to help the Pound Sterling regather its bullish momentum.

USD/JPY fell sharply on Thursday and continued to push lower during the Asian trading hours on Friday. The pair was last seen trading at around 128.70, down 0.4% on the day.

Fueled by falling US Treasury bond yields, Gold price rose above $1,900 for the first time in nearly 8 months. In the early European morning, XAU/USD is moving sideways slightly above $1,890.

Bitcoin capitalized on improving market mood and advanced beyond $19,000 on Thursday, gaining more than 5% on a daily basis. BTC/USD stays in a consolidation phase at around $18,800 early Friday. Ethereum extended its winning streak into a fifth straight day on Thursday and rose above $1,400 before staging a technical correction on Friday.

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