Waller Says Fed Relaxed on Rate Cut Timing

The US Dollar continues to make ground across early 2024 trading as Fed members pushback against those calling for imminent rate cuts in the US. Speaking yesterday, Fed’s Waller reiterated comments made by chairman Powell in December noting that, while rate cuts were likely this year, the Fed has ample time to ease out of its current tightening program in a relaxed manner. Market pricing is currently pegging an expected March rate cut. However, on the back of Waller’s comments yesterday, pricing has fallen to around 60% from around 70% previously.

US CPI On Watch

Last month’s uptick in inflation was seemingly ignored by traders with barely any change in March rates pricing. However, in light of these comments from Waller yesterday, traders will now be keenly awaiting the next CPI data to see if the uptick was a temporary blip or a potential bottoming in inflation. If the latter is seen we could well see March rate cut pricing falling below 50% which would send USD sharply higher near-term, causing material impact across FX and other markets.

US Retail Sales Due

Looking ahead today, we have US December retail sales this afternoon. The data is expected roughly flat, month on month. However, should we see an uptick in this data, the current USD uptrend is likely to gather further pace near-term.

Technical Views

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USDJPY

The failed break below the 142.03 level has seen the market reversing sharply higher in recent weeks. Price is now trading back above the 145 level and is fast approaching a test of the 148.98 level and a retest of the broken bull trend line. With momentum studies bullish the focus remains on further upside while 145 holds as support. 

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