The US Dollar Index initially surged following hotter-than-expected January CPI data, but later retreated. Treasury yields climbed as markets reassessed the Federal Reserve's policy stance. Federal Reserve Chair Jerome Powell offered no concrete signals on rate cuts, reinforcing a cautious outlook for monetary policy.
The US Dollar Index (DXY) experienced a volatile session after January's Consumer Price Index ( CPI ) data revealed hotter-than-expected inflation. Initial gains fueled by expectations of sustained higher interest rates were quickly reversed as markets digested the implications of the data and Federal Reserve Chair Jerome Powell 's cautious testimony on Capitol Hill.
Despite the DXY's retreat, Treasury yields climbed higher, reflecting investor concerns about persistent inflation and a potential delay in rate cuts. \Headline CPI rose 0.5% month-over-month (MoM) in January, surpassing the projected 0.3% increase and accelerating from December's 0.4% gain. Core CPI also jumped 0.4% MoM, exceeding expectations of 0.3% and contrasting with the previous month's 0.2% rise. Powell's second day of testimony provided no concrete signals regarding the timing of future rate cuts, reiterating the Fed's commitment to its 2% inflation target. He emphasized the Fed's independence and dismissed any political pressures to deviate from its policy path. \While acknowledging that progress on inflation has slowed, Powell stressed the importance of monetary policy rules as guiding principles rather than rigid mandates. He highlighted the need to assess economic conditions on a case-by-case basis and avoid pre-committing to specific policy actions. The market's outlook for rate cuts in 2025 has shifted following the recent inflation data and Powell's comments, potentially benefiting the US Dollar. The CME FedWatch Tool now indicates a lower probability of a rate cut in May, reflecting the heightened uncertainty surrounding the Fed's future policy trajectory. Investors are now turning their attention to upcoming Retail Sales and Producer Price Index (PPI) data for further insights into inflationary trends
US Dollar Index CPI Inflation Federal Reserve Jerome Powell Monetary Policy Treasury Yields Rate Cuts
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