US Dollar Index (DXY) Slides After Higher-Than-Expected CPI Data

By Andrew Moran February 15, 2023, 2:37 am • Posted in Forex

The US dollar recovered throughout the Tuesday trading session after the January consumer price index (CPI) report sent the greenback tanking. But the buck still finished the day in the red, driven by expectations that cooling inflation will eventually encourage the Federal Reserve to hit the pause button on tightening and potentially cutting interest rates.

According to the Bureau of Labor Statistics (BLS), the annual inflation rate slowed to 6.4% in January, down from 6.5% in December. Economists had anticipated a reading of 6.2%. The annual core inflation rate also eased, dipping to just 5.6%, down from 5.7%.

On a month-over-month basis, the consumer price index (CPI) rose 0.5% last month, up from 0.1% in the previous month. The core inflation rate edged up 0.4%, unchanged from December.

Once again, the services sector inflation rate inched higher toward 7.6%. In addition, many categories either remain elevated, like shelter (7.9%), or are showing signs of rising again, including food and energy.

In other economic data on Tuesday, the National Federation of Independent Business (NFIB) Optimism Index jumped to a lower-than-expected 90.3, up from 89.8.

The next major report will be the January retail sales report, which is expected to rise by 1.8%. Moreover, industrial and manufacturing production, producer prices, and trade prices data will be released.

The US Treasury market was mixed on Tuesday, with the benchmark ten-year yield down 1.2 basis points to 3.749%. The one-month bill added 2.5 basis points to 4.588%, while the 30-year bond shed 1.7 basis points to 3.784%. The recession-indicating spread between the two- and ten-year yields widened to nearly 90 basis points.

The US Dollar Index (DXY), which gauges the greenback against a basket of currencies, fell 0.16% to 103.26 on Tuesday. The index has struggled for direction so far this year, rising 0.9% over the last month but down 0.23% on the year.

The USD/CAD currency pair rose 0.11% to 1.3353, from an opening of 1.3338. The EUR/USD dropped 0.05% to 1.0732, from an opening of 1.0737.