This week started with a continuation of USD weakness on the expectations that headline and core US inflation would be falling lower. Thursday’s US CPI print was as expected, but the market had a dovish reaction to the print. This increased STIR market’s probability to 92% of a smaller 25bps hike at the Fed’s next meeting in February. It looks like the market is starting to price in an even wider discrepancy between its own pricing and the Fed. Remember, the Fed’s latest dot plot still sees no rate cuts this year, but STIR markets now see two rate cuts. So, watch out for further volatility moving forward as the path of US rates remains uncertain.

Other key events from the past week

• USD: Fed Chair Powell Speech, Jan 10: Fed’s Powell gave no clue as to his thoughts on December’s FOMC dot plot. Does the Fed still see the case for no rate cuts in 2023? Powell stayed silent on this on Tuesday.
• JPY: Tokyo CPI, Jan 09: The print for the Tokyo CPI print y/y was 4% and which was higher than the 3.9% expected. The core was higher too at 4%, above the 3.8% expected. Remember that the BoJ will have a change of Governor this year and investors are speculating as to whether this means an exit from the BoJ’s ultra-loose monetary policy.
• USD: CPI Inflation, Jan 12: The main focus of the week was on this US CPI print. In the event, the headline and core were in line with expectations but short-term interest rate markets took this to mean even lower rates for December this year. They were down to 4.42% just after the US CPI print was released.

Key events for the coming week

• GBP: UK wage data, January 17: One thing the Bank of England will want to see is falling average earnings. Fears of a wage-price spiral were one of the key reasons that led the Bank of England to start hiking rates last year, so a low print here should be reassuring for the BoE that current rate hikes are working.
• All in for Alibaba? Alibaba has some great seasonals coming up. 
• USD: US retail sales, Jan 18: ‘Never bet against the US Consumer”, they say! How is the US consumer doing? Expectations are for y/y retail sales data to fall to 5% from 6.5% prior. A big miss here and will we further USD selling and US stock buying? Certainly one print to watch.

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