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Currencies were mixed on Monday. Commodity-led currencies appreciated the most, followed by Northeast Asian currencies, amid relatively neutral European currencies. Market participants probably bought back these currencies after the USD’s aggressive rise on better-than-expected US nonfarm payrolls last Friday pushed most currencies into weak or oversold levels, according to their 14-day RSIs. Today, they would probably do the same for the INR and Southeast Asian currencies that weakened during yesterday’s Asian session.
The DXY Index, which tested the critical 110 level during the European session, retreated in the final hours of the overnight session, driven by news that Trump’s incoming economic team was working on a strategy of gradual tariff increases to avoid reigniting inflation. Hence, markets will pay close attention to Scott Bessent’s confirmation hearing as Treasury Secretary on January 16.
The US Treasury 10Y yield rose for a seventh session by 1.9 bps to 4.778%. The New York Fed’s Survey of Consumer Expectations reported that consumers expected inflation to rise on potential tariffs during Trump’s second term. Following Trump’s victory in the US elections on November 5, 3-year inflation expectations rose to 3% in December from 2.6% a month earlier, while 5-year expectations increased to 3% from 2.7%.
Hence, markets are bracing for today’s PPI final demand to bounce to 3.5% yoy in December from 3% in November and tomorrow’s CPI inflation to rise to 2.9% YoY from 2.7%. The futures market has a small bet for one Fed cut in June, fewer than the two cuts projected by the Fed last month. The next few days could become volatile, depending on whether inflation surprises or Bessent affirms a gradual approach to implementing Trump’s tariffs.
Quote of the Day
“It’s been said that astronomy is humbling and, I might add, a character-building exercise.”
Carl Sagan
January 14 in history
The European Huygens space probe landed on Saturn’s moon Titan in 2005. It was the first ever landing in the outer solar system.
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