Dollar steadies, bond yields rebound – Wall Street stocks slip

US producer prices exceed forecasts; Euro, Sterling edge up

Summary

The Dollar Index (DXY), which gauges the Greenback’s value against a basket of 6 major currencies steadied to finish at 104.27, little changed from previously. In volatile overnight trade, the DXY ratcheted to 104.67 on the higher-than-forecast US PPI before tumbling.

US Producer Prices exceeded forecasts with Core up 0.5% in January, higher than the previous month’s downward revised -0.1% (0.0%). Headline US PPI rose 0.3% from -0.1% previously.

The 10-year US Bond Yield rebounded to 4.28% from 4.24% Friday. Two-year US rates were last at 4.64%, up from 4.57% Friday. Other global bond rates were also higher. Germany’s 10-year Bund Yield rose to 2.40% (2.36%). The UK 10-year Gilt rate rose to 4.10% (4.05%).

The Euro (EUR/USD) edged up to 1.0777 from 1.0767. Germany’s January Wholesale Prices jumped 3.4%, higher than expectations at 1.5%, and a downward adjusted -3.3% previously.

Against the Japanese Yen, the US Dollar (USD/JPY) rose above the 150 level to 150.22 at the New York close. Earlier in the session, the USD/JPY pair traded to an overnight high at 150.64.

The Australian Dollar (AUD/USD) finished at 0.6534, up from 0.6522 Friday. Last week’s surprising hawkish stance from the RBA supported the Aussie.

The Kiwi (NZD/USD) climbed to 0.6125 (0.6111). New Zealand’s Business NZ PMI recovered to 47.3 from 43.4 in January, lifting the Kiwi. It was the highest activity reading since May 2023.

Sterling (GBP/USD) finished little-changed at 1.2600 (1.2597 Friday) despite higher-than- expected UK Retail Sales, which soared to 3.4% (m/m) against median estimates of 1.5%.

The US Dollar finished mixed against the Asian and Emerging Market currencies. USD/CNH (Dollar-Offshore Chinese Yuan) dipped to 7.2135 (7.2155 Friday).  Against the Thai Baht, the Greenback (USD/THB) eased to 36.00 from 36.05.

Wall Street stocks eased after climbing earlier in the day. The DOW slipped 0.7% to 38,570 (38,750) while the S&P 500 was last at 5,000, down from 5,030 Friday.

Other data released on Friday saw Japan’s Tertiary December Industry Index climb to 0.7% from -1.4% previously, beating forecasts at -0.3%. US January Building Permits fell to 1.47 million from 1.493 million previously, lower than expectations of 1.509 million.

The University of Michigan Preliminary February Consumer Sentiment Index slumped to 79.6 from 79 previously, lower than median expectations at 80.

China’s Preliminary Current Account dipped to +USD 55.2 billion, down from +USD 62.8 billion, lower than median expectations at +USD 60.0 billion.

Yesterday China’s central bank (PBOC) held its one-year policy loan rate unchanged at 2.5%. The PBOC injected a small amount of cash into the financial system. Both moves were expected by analysts. 

USD/JPY – The Dollar managed to stay above the 150 Yen level, finishing at 150.22 after a choppy session. The USD/JPY pair traded to an overnight high at 150.64 before easing to its close. The overnight low recorded was 149.92.

EUR/USD – The shared currency edged higher to finish at 1.0777 from Friday’s open at 1.0767. The Euro traded to an overnight high at 1.0787 while the overnight low recorded was at 1.0732. The jump in Germany’s January Wholesale Prices buoyed the Euro.

AUD/USD – The Aussie Battler climbed against the modestly weaker US Dollar to 0.6534 at the New York close, up from 0.6522 Friday. The overnight high recorded for the AUD/USD pair was at 0.6545 while the overnight low recorded was 0.6496.

GBP/USD – Sterling finished at 1.2600 on Friday, little changed from its opening at 1.2597. The British Pound traded to an overnight low at 1.2550 before rebounding at the close, boosted by the higher-than-expected UK Retail Sales report.

On the lookout

The week starts off with a light economic calendar today. Japan releases its December Machinery Orders (m/m f/c 2.5% from -4.9% previously; y/y f/c -1.4% from -5% previously – ACY Finlogix). The UK kicks off Europe with its UK February Rightmove House Price Index (m/m – no f/c, previous was 1.3% - FX Street; y/y no f/c, previous was -0.7% - FX Street). China releases its Year-To-Date Foreign Direct Investment for January (no f/c, previous was -8.0% - FX Street). US markets will be closed due to the President’s Holiday.

The week’s big event is the release of the Fed’s FOMC meeting minutes on Thursday (22 Jan).

Trading perspective

Higher-than-expected US Producer Prices put a bid under the Dollar which retains the advantage against its Rivals today. Yield differentials remained strongly in favor of the Greenback. Recent rhetoric from Federal Reserve officials remained cautious when dealing with rate cuts, indicating “patience” is required. Expect the Dollar to find good support against various Rivals at current levels. The Dollar Index (DXY) has strong support at 104.20 followed by 104.00. Expect consolidation today, with established ranges holding.

USD/JPY – The Dollar has immediate support against the Japanese Yen at 150.20, which is where it settles currently. The next support level lies at 149.90 (overnight low traded was 149.92). The next support level is found at 149.60. On the topside, immediate resistance is found at 150.65 (overnight high) and 150.95. Look for consolidation in a likely range today of 149.90-150.90. Prefer to buy USD/JPY dips today.

EUR/USD – The shared currency edged up against the Greenback, finishing with modest gains at 1.0777 (1.0767 Friday). Look for immediate resistance today at 1.0780 followed by 1.0810. On the downside, look for immediate support at 1.0730 (overnight low traded was 1.0732). The next support level lies at 1.0700. Likely range today, 1.0720-1.0820. Preference is to sell Euro rallies today.

AUD/USD –The Aussie Battler grinded higher against the Greenback to 0.6534 at the New York close (0.6522 Friday). Immediate resistance today lies at 0.6550 (overnight high traded was 0.6545). The next resistance level can be found at 0.6580. Immediate support lies at 0.6500 followed by 0.6480. Look for the Aussie to trade a likely range today of 0.6490-0.6590. Trade the range, nice and wide.

GBP/USD – Sterling finished little changed against the Greenback at 1.2600 (1.2597). Look for immediate resistance at 1.2625 (overnight high traded was 1.2624). The next resistance level lies at 1.2655 and 1.2685. Immediate support can be found at 1.2580 (overnight low traded was 1.2581). Look for the British Pound to consolidate in a likely range today of 1.2570-1.2640.