The US dollar saw a consecutive second-day uptick, primarily driven by gains against the euro, pound, and yen. Investors are anticipating the crucial US Consumer Price Index (CPI) report scheduled for tomorrow, a determining factor for the Federal Reserve's stance in the upcoming January meeting. Economists predict a slight uptick in December's inflation from 3.1% to 3.2%. Nevertheless, core inflation is expected to continue its descent, cooling by 20 basis points to 3.8% by the end of last year.
Market expectations ahead of the event include pricing in six rate cuts, each worth 25 basis points, throughout 2024, with March as the starting point for the easing cycle. The recent NFIB survey, released yesterday, had minimal impact on altering this perspective. Small business optimism in the US rose to its highest level in five months in December, climbing from 90.6 to 91.9. Price and compensation expectations remained relatively stable, pointing towards an increase in inflation and wage growth in the second quarter of the current year.
US Treasury yields are experiencing a decline across the curve for the week. Equities have successfully recovered from their early-year losses last week, with the S&P500 and Nasdaq gaining 1.5% and 2.2%, respectively. This week presents an intriguing combination of falling yields, advancing stocks, and a strengthened US dollar. GBP/USD is maintaining a holding pattern and continues to struggle to sustain its position above $1.27. Despite seven consecutive weeks of testing this level, the currency pair has yet to decisively break out.
